Reverse Mortgages: The Who, Why and When

Reverse mortgages are unique loans that give seniors the opportunity to withdraw a portion of their home equity and defer payment until their home is sold. Unlike other loan products, these loans carry strict age requirements. To qualify for a reverse mortgage, borrowers can be no younger than 62 years of age. According to data collected by the National Council on Aging (NCOA) in 2010, the average reverse mortgage borrower is 73 years old. In recent years, however, the average demographic has been rapidly changing. The NCOA has recently found that one out of every five applicants is between 62 and 64 years of age. Reverse mortgages are no longer just for older retirees. Younger seniors are now considering these loans and for very good reason. rnWhy More Seniors Are Including a Reverse Mortgage in Their Retirement Plans Reverse mortgages are only available to seniors who own their homes outright or will be able to pay off their existing mortgage with the proceeds of their new loan. This means that, after getting a reverse mortgage, seniors get to continue living in their homes without having to worry about forward mortgage payments. Depending on the amount of equity a senior has accumulated, he or she may also walk away with additional tax-free proceeds that can be used however the borrower sees fit. Seniors typically get reverse mortgages for two main reasons: to enhance their quality of life or reduce debt. As previously discussed, reverse mortgages eliminate seniors’ monthly mortgage payments. Additional proceeds can be used to pay off high-interest credit cards, pay medical bills or eliminate other debts. A recent survey conducted by the Associated Press and Life Goes Strong showed that the great majority of seniors 66 and older want to stay in their current homes during retirement. Getting a reverse mortgage helps seniors stay in their homes while reducing their monthly bills and freeing up additional cash. While many seniors want to reduce their debt, others want to enhance their quality of life. For some seniors, a reverse mortgage is a tool that allows them to travel, renovate their home or enjoy other luxuries. As long as the loan meets a senior’s needs, there is no right or wrong way for borrowers to use their loan proceeds. rnWhen Reverse Mortgages Are the Most Beneficial There are several scenarios in which a reverse mortgage would be beneficial. Many seniors choose to get reverse mortgages later in retirement when their assets have dwindled and their remaining mortgage balance is low. Since older borrowers qualify for the highest payouts, this strategy makes sense for many seniors. Some seniors, however, take a more aggressive approach. Instead of getting a reverse mortgage when their assets have been depleted, some seniors take a reverse mortgage early in retirement in order to give their assets more time to grow. A portion of borrowers also use these loans to prolong applying for Social Security benefits. Both of these strategies help seniors maximize their retirement funds and plan for their future financial needs.