A reverse mortgage is a home loan that provides cash payments based on home equity. Homeowners normally “defer payment of the loan until they die, sell, or move out of the home.” Upon the death of homeowners, their heirs either give up ownership to the home or must refinance the home to purchase the title from the reverse mortgage company
There are people who are for it and people who are very against it. Dave Ramsey for example hates them. (If you don’t know who Dave Ramsey is, he provides financial advice on a national syndicate radio show.)
Larry Mitchell with The Bank of Utah disagrees with Mr. Ramsey and feels they can be beneficial. “A reverse mortgage is a special loan program designed for homeowners who are at least 62 years of age that allows them to convert the equity in their home into monthly cash flow. The monthly cash flow can be used on anything they want. Here are a few facts about reverse mortgages:
- The home is not sold to the bank – the borrower retains title to their property.
- The loan is not based upon income or credit scores.
- Repayment of the loan is not required until the last borrower moves out permanently or passes away.
- The borrower, or borrower’s heirs, will never owe more on the loan than the fair market value the day it is sold.”
Unlike Mr.Ramsey, we find it very dangerous to make blanket statements. Maybe our experience with the tax code makes us that way since the tax code is exception after exception on top of exceptions. If you fit the criteria for a reverse mortgage and need more monthly cash flow, it’s worth it to talk to your financial planner about one to understand its pros and cons.