Reverse mortgages are finally getting the attention and respect they are due as a financial planning tool for seniors. The reverse mortgage concept allows a borrower, typically a retiree with no existing mortgage, to leverage the equity in their home with a loan that has deferred payments until the borrower dies or sells the home. The interest is added to the balance every month and the full amount is due in a lump sum payment.
The idea behind reverse mortgages is to allow seniors to supplement their retirement income by using the equity in their homes without being burdened by monthly payments. New guidelines established by the Home Equity Conversion Mortgage (HECM) ensure that minimum lending criteria are established--borrowers must demonstrate standard debt-to-income qualifications so that properties don't fall into foreclosure due to unpaid taxes and insurance bills. Also, borrowers can now choose between a consistent monthly draw on the equity or draws as needed, like a tradtional equity line of credit.
New guidelines from HECM also provide for the surviving spouse. To qualify for a reverse mortgage a borrower must be 62 or older, however some younger spouses do not qualify to be on the loan because of their age. As a non-mortgagor, the younger spouse was previously faced with forced eviction from the home upon the death of the mortgage-holding spouse; new rulings provide the spouse can stay in the home under the original loan terms.
If your retirement planning didn't plan for the upheaval of the markets and low returns on bonds and treasuries, consider a reverse mortgage as a tool for a more comfortable retirement.