Home Equity Loan ?A Reverse
Mortgage Could Provide a Comfort |
By Charles Essmeier |
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While only comprising about 1% of all mortgages, the reverse
mortgage has gained in popularity in recent years. Federally
insured since the late 1980s, the reverse mortgage allows owners
of paid-off homes to borrow against the equity in their homes in
the form of a lump sum, a line of credit, or in the form of
monthly payments. The loan is repaid when the owners die or when
the home is sold or no longer occupied.
In the early
years of its existence, the reverse mortgage was regarded as at
last resort step to avoid foreclosure, or keep the home from
disrepair. More recently, however, retirees have been finding
creative ways to use the equity in their homes to allow their
retirement years to be more enjoyable.
The huge growth
of the housing market during the last five years has left
millions of homeowners with large amounts of equity in their
homes. Californians who bought homes in the early 1960s at
modest prices are now retiring; many of them have home equity in
the mid-six figures. With that sort of equity, homeowners are
using their equity to buy recreational vehicles, boats, luxury
vacations, and even second homes. The structure of a reverse
mortgage makes it possible for some homeowners to pay cash for a
vacation home, while continuing to live in their primary
residence for as long as they like, or are able. Once they die,
the primary residence would be sold to pay pack the loan, while
the second home would become part of their estate.
This
has provided a rare opportunity for many couples, who struggled
to raise families and pay mortgages during the working years, to
enjoy a few luxuries in their retirement years. Couples who
could never afford to travel can now dip into their home equity
and see Europe or take that cruise that always eluded them.
While this may seem like a win-win situation for all involved,
those in the lending industry express caution. For most people,
the equity in their home is their single largest asset, and
borrowing against it should done only after careful
consideration. What if a lengthy hospital stay became necessary
Would the homeowner have sufficient funds to pay for that after
buying a second home through a reverse mortgage What if a
husband or wife became incapacitated and required permanent
housing in a nursing home These are things that must be
considered before using home equity for a houseboat or RV, and
those considering such a move should consider discussing their
plans with a financial advisor.
Despite the potential
drawbacks, the use of the reverse mortgage to fund a fun and
adventurous retirement seems to be growing. With interest rates
still near all-time lows, the trend will almost certainly
continue in the near future. |
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