The ads on television seems focused on aging boomers and their finances. One focus is the reverse mortgage—they are the last thing that boomers would ever want, and they are the first thing they need as a last resort. What are the pros and cons of the reverse mortgage.
The National Foundation for Credit Counseling® (NFCC) reported in a March, 2014 survey that 71% of Americans are worried about their financial situation. You’ve seen the ads for the financial planning company who interviews an individual in a taxi worried about his financial future. The interviewee says he has a life expectancy of 24 years, but only enough retirement savings for 15 years. Even with these worries in mind, adults who are spending less than the previous year continues to decline from 57% in 2009 to 29% in 2014.
One consequence of worrying about making ends meet has been an increase in Americans over 62 taking out reverse mortgages. The number of reverse home equity conversion mortgage (HECM loans) made in each federal fiscal year peaked with the housing crisis in 2007-2009 in FY 2009 at 114,692. Loans fell off to FY 2012 at 54,822, but seem to be on the rise again. We are currently at or above last year’s 60,091.
What is a Reverse Mortgage?
“A reverse mortgage is a loan against home equity that doesn’t have to be repaid until you move, sell your home or die. You can receive a lump sum, a line of credit, monthly payments or a combination. To qualify, you must be 62 or older. (If the home is owned jointly, both owners must be at least 62.) The amount you can borrow is based on your home’s value, current interest rates and your age.”
To apply for a reverse mortgage was easy prior to 2015. But that is about to change for many, as new regulations go into effect in 2015 that will require individuals that opt for a reverse mortgage to have financial planner counseling.
It’s easy to Google and find the Pros for reverse mortgages, but not as easy to get the cons. The Pros can be listed as:
The Cons can be listed as:
The reverse mortgage certainly is a viable option for some older Americans, especially if you are not considering moving. Others believe that a reverse mortgage is a little like a car airbag. It’s nice to know it’s there. But if it ever has to be used, the driver’s already in trouble.
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