As we age, it can become increasingly difficult to find out where to live and how to pay for it. President and CEO of the National Reverse Mortgage Lenders Association, Peter Bell, has noted that the onset of aging baby boomers have rendered the reverse mortgage as a tool for staying in the home.1
There are many different uses for a reverse mortgage. Some borrowers use such funds to pay off their conventional mortgage and free up cash for other expenses. Others utilize a reverse mortgage to make their homes more practical to live in as they age. The installation of handrails, easily accessible bathrooms, and functional kitchens can turn a home into a viable permanent residence for older individuals. Reverse mortgages also make for an effective standby line of credit. Seeing as an individual’s demand for cash will typically fluctuate, a line of credit keeps borrowers from having to sell stock in a down market or having to take out money from an investment and incurring a penalty.1
NRMLA’s President believes that a lot of people who are critical of reverse mortgages don’t understand the newer government-regulated forms, including reverse mortgages that allow people to manage their cash flow by paying back what they owe and re-borrowing it down the road.1Unfortunately, many of those who oppose reverse mortgages are actually misinformed. The new redesigned reverse mortgage revolves around lower maximum loan amounts. Also, the limit on first-year withdrawals will take pressure off the insurance fund by reducing the likelihood that borrowers default.1 The regulations require professional counseling by a third party that is not associated with the lender. Bell says “A lot of people don’t take the counseling seriously, but it’s a great opportunity to seriously consider the transaction, how the loan will work, and what its impact will be on the borrower”.1
Lower fees and a more refined experience make reverse mortgages today a much more attractive option for seniors.2
Sources
1http://www.bankrate.com/financing/retirement/keeping-a-roof-over-your-head/
2To receive a lower mortgage insurance premium (MIP) fee, initial disbursement at closing and during the first 12 months cannot exceed 60% of the principal limit.