Getting Equity Out Of Your Home for Retirement

The great American Dream is to own a home. After all, it is a great nest egg investment. When you hit your retirement years, however, how do you turn the equity in the home into money you can use? Many suggest using a reverse mortgage.

Most people are familiar with a forward mortgage. You borrow money from a lender to pay for a home. You then pay back the loan on a schedule over a number of years. The reverse mortgage is similar to this, but the money is going the other way.

Most people view reverse mortgages as new financial tools. In truth, they have been around for over 50 years. As more people try to figure out how to access the equity in their home, the reverse mortgage is seeing a renaissance.

The government and various groups have worked long and hard to eliminate bias in the country. It is somewhat ironic that the reverse mortgage contains a legal bias. Yes, you can only apply for it if you are older than 61 years of age.

The reverse mortgage works the opposite of a traditional mortage, but it can be hard to get your head around the concept. Essentially, the lender buys the equity in the home from you by making payments to you.

The nature of the payments, of course, is unique. You can have the lender make monthly payments to you much like you did to your original mortage lender. Alternatively, you can ask for a lump sum payment.

The good news is you need not pay back the money the lender is paying you. Instead, the lender will recover the money when the home is eventually sold. The bad news is you are limited to selling only fifty percent of the equity you have in your home.

Are their any downsides to the reverse mortgage? If you listing to the advertising, you would think not. Look past the marketing pieces and the reverse mortgage can quickly become a horror show.

The first problem with the reverse mortgage is your heirs. If you hope to leave them with something, you need to realize the reverse mortgage lender is going to take a large chunk of the equity in your home when you sell it or pass on.

The cost of the reverse mortgage is another big issue. Simply put, the fees are outrageous in most cases. They often run up in the tens of thousands of dollars. The interest rate on the accruing debt is also going to be higher than normal loan rates.

Ultimately, the issue of whether the reverse mortgage is a good idea is very controversial. Opinions differ, but most feel these are not good loans when compared to the many options available and you should explore those options.