People who are planning for their retirement years face certain challenges, not the least of which is the fact that nobody can see into the future. You have no way of knowing exactly how long you will live; how well your health will hold up; what the future of senior entitlement programs will look like; and how the economy will play out in the years to come. The key is to stay informed and use common sense to prepare to the best of your ability. The best way to do this is to stay apprised of all the options that are available to you.
If you are at least 62 years of age, have significant equity in your home or own it outright, and use this property as your primary residence you’re probably qualified for a Home Equity Conversion Mortgage (HECM). These loans, commonly called reverse mortgages, provide you with payments that can be made either incrementally, in a lump sum, or on an as-needed basis. In return for the availability of these funds, the lender takes the equity in your home. If you have concerns about the legitimacy of these loans, HECMs are federally insured and backed by the United States Department of Housing and Urban Development.
Of course there’s something in it for the lender. There are origination fees and closing costs, and interest rates are higher than typical mortgages. However the fees can be folded into the loan so no immediate outlay of money is necessary. You are required to maintain the home properly and pay property taxes. If you fail to meet these conditions the loan could be called in.
The reverse mortgage becomes due after you pass away or choose to move from the residence. Many people will sell the home and use the proceeds to pay off the loan balance while keeping the remainder, if any. However, the loan can be paid via any source of funding that you choose to utilize.
Larry Parman
Founding Attorney
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