Reverse Mortgages: Cure For Bad Home Loans?

Using a home equity line of credit, David Casey and his wife, Joyce, made some much-needed improvements around their house. New carpet and updated plumbing to name a couple.

But the credit line’s interest kept jumping, pushing their monthly home equity loan payment to nearly $1,000 from $600.

Fortunately, a $239,000 reverse mortgage rescued the retired couple from the adjustable-rate credit line and provided enough money to pay off the first mortgage with some left over.

Typically used to finance retirement or pay unexpected medical bills, a reverse mortgage can help seniors escape tight spots created by risky mortgages and home equity loans.

At least in certain situations.

Casey now has a new roof, a new Cadillac, and no mortgage debt. The 71-year-old is even going back to school to finish his bachelor’s degree.

Unlike a traditional home loan, a reverse mortgage allows homeowners over age 62 to take money out of their home to help fund their retirement or obtain cash.

But instead of paying back a home loan, the mortgage lender pays part of the home equity in the home to the senior in cash.

The payments come either in a lump sum, regular payments or a combination.

The home loan lender takes some of equity as payment. Most of the time, the reverse mortgage contract ends once the property is sold, usually after the homeowner sells, or passes away.

Some experts caution that if a senior elects to receive monthly payments over a fixed period of time, however, the homeowner could outlive payments and still be liable for property taxes, upkeep and other expenses.

Continue reading this Forbes article on the ever-changing market - and pros and cons of - reverse mortgages …