Retirees Look at Reverse Mortgages

Retirees Look at Reverse Mortgages

Burlington, Vermont - May 7, 2007

Sally Rice of Burlington is enjoying her retirement.

Said Rice: "Well, when I was making a decision whether or not I wanted to retire, I knew I did not want to retire as a poor lady. These are the prime years of my life, and I wanted to enjoy them."

Rice has a retirement plan in place that includes a pension and social security. After that runs out, she will consider living off of her largest asset -- her house.

"As the boomers get into retirement, and they start realizing that they want to do more... they want to stay active, and they're on a fixed income suddenly, the reverse mortgage is a tool," said Scott Funk, a reverse mortgage broker from Richmond.

In a typical mortgage, the home owner makes a monthly payment... after each payment to the lender, the homeowner increases the equity in their home.

Reverse mortgages are just that -- a mortgage in reverse. The homeowner gets paid by the lender each month, and the homeowner's equity in their property decreases.

For older persons who already have significant equity in their home but don't have enough income, reverse mortgages can be a good financial move.

Continued Funk: "You want to be there for the long haul when you're getting a reverse mortgage, because the price is structured to give you the best value over the longest period of time."

"I have no intentions of moving out of here," said Rice about her home. "This is where I want to be the rest of my life if it all possible. I've got the equity in the house and why not use it?"

But there are some caveats -- reverse mortgages are expensive to set up, and should not be used for short term borrowing.

With a reverse mortgage, the loan does not need to be paid until the homeowner dies, or moves out of the home. In that case, the home can be sold to repay the loan.

Reverse mortgages are structured so that the amount loaned is never more than the value of the home. That leaves lenders and heirs with little risk.

For Rice, a reverse mortgage could be the key to a worry free retirement.

"It made me feel so good to know that that option was there, and I could go on leading a nice life in retirement and still know that I won't be a burden to any of my family members," concluded Rice.

To be eligible for a reverse mortgage, you have to be at least 62 years old and own your own home, but you can have an existing mortgage on the property. The amount of money you can receive from a reverse mortgage depends on factors such as how old you are, how much equity you have in your home, and how long you plan to live there.

Alex Martin - WCAX News
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