As Baby Boomers move into retirement, being able to remove the burden of a mortgage payment can be a tremendous help. Though reverse mortgages have had a less than stellar reputation over the years, they can be a useful financial tool for the right homeowner and the right situation, according to a recent article from Yahoo Finance.
Reverse mortgages are not only useful as a last resort option, the article points out. “Years past, financial planners didn’t view reverse mortgages as a planning tool,” David Johnson, associate professor of finance at the Maryville University in St. Louis, says in the article. “It was viewed as a last resort, and they assumed that the only people that do reverse mortgages are people that desperate. Clearly that’s not the case, and I think they are starting to view differently now.”
The payment methods available for reverse mortgages are also important to understand. Choosing between monthly payments, a lump-sum payment or a line of credit are all explained in the article.
Many homeowners like having the line of credit available, especially if they don’t need the money right now, Beth Paterson, executive vice president of the Reverse Mortgages SIDAC in St. Paul, Minn. explains in the article.
How reverse mortgages affect adult children is always something potential borrowers are concerned about. But, in many cases, adult children won’t be too heartbroken about losing the inheritance, they will be happy their parent is financially secure, the article points out.
Another criticism of the reverse mortgage product is that they are too expensive, however, the article notes that the costs for a reverse mortgage are no different from a conventional mortgage.
“It’s still going to be accruing interest on the house the same way as a conventional mortgage,” Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, says in the article “The question is whether you are going to be making those months payments now or let that be paid off later.”
There are so many facets to the reverse mortgage product and making sure borrowers understand them all before signing anything is vital to the program’s success.
Read the full article on Yahoo Finance.
Written by Alana Stramowski
