As our population ages and many seniors face the stark reality that they simply haven’t saved enough for a comfortable retirement, reverse mortgages gain appeal.

Generally available only to homeowners aged 62 or older who occupy their homes as a principal residence, reverse mortgages offer those who have substantial equity in their property the opportunity to tap into that asset while remaining in the home.

“The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower, “ notes the National Reverse Mortgage Lenders Association (NRMLA).

“The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home, he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance and condominium fees (if applicable). “ Credit worthiness and monthly income aren’t important in this type of loan.

While these kinds of loans sound highly appealing on the surface, the devil is in the details. It’s critical to make sure the numbers make sense, as often seniors who are in desperate situations will leap at anything that appears to offer relief.

We strongly urge anyone considering a reverse mortgage to find an impartial person (not the loan officer) to help analyze the prospective loan. Also, consider these pros and cons:

Pros:

• As long as the home remains the principal residence of the borrower, no repayment is required.
• You keep title to the property.
• Loan proceeds aren’t taxable.
• Proceeds from the reverse mortgage can be used for anything you wish, including supplementing retirement income, making home repairs, paying off existing debts, or to prevent foreclosure.
• Most reverse mortgage loans are “non-recourse loans,” meaning that you will never owe more than the value of your home at the time you or your heirs sell it to repay the reverse mortgage.

Cons:

• When you die, the loan’s interest and costs are due. If your heirs don’t have the money, this requires sale of the home.
• If you fail to pay taxes or maintain the home, the bank can foreclose.
• You are only allowed to leave your home for a total of 12 months, which means if you need extended care, for example, or your work requires you to move, problems can arise.
• Fees can be much higher than a traditional mortgage.
• These are complicated deals. If you don’t proceed with caution, you can fall prey to unscrupulous lenders who will saddle you with costly products or services that are inappropriate for your situation.

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