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Getting Equity Out Of Your Home For Retirement
By Barry Waxller
The great American Dream is to own a home. After all, it is a great nest egg investment. When you hit your retirement years, however, how do you turn the equity in the home into money you can use? Many suggest using a reverse mortgage.

Most people are familiar with a forward mortgage. You borrow money from a lender to pay for a home. You then pay back the loan on a schedule over a number of years. The reverse mortgage is similar to this, but the money is going the other way.

Most people view reverse mortgages as new financial tools. In truth, they have been around for over 50 years. As more people try to figure out how to access the equity in their home, the reverse mortgage is seeing a renaissance.

The reverse mortgage is one of the rare financial tools that allows for age bias. In fact, there is a mandatory



age limit and it is legal. Simply put, you must be 62 year of age or older to apply for a mortgage.

In a reverse mortgage, you have equity in your home and a lender is willing to trade you cash now for a chunk of that equity. Yes, you are essentially selling the property to the lender, which is making payments on it over time.

The nature of the payments, of course, is unique. You can have the lender make monthly payments to you much like you did to your original mortage lender. Alternatively, you can ask for a lump sum payment.

The good news is you need not pay back the money the lender is paying you. Instead, the lender will recover the money when the home is eventually sold. The bad news is you are limited to selling only fifty percent of the equity you have in your home.

So, are there any negatives to this equity converting financial product? Oh, yes there are. Remember, marketing efforts are all about emphasizing the positive while ignoring the negatives.

The first problem with the reverse mortgage is your heirs. If you hope to leave them with something, you need to realize the reverse mortgage lender is going to take a large chunk of the equity in your home when you sell it or pass on.

The second problem is the loan is expensive. You can spend tens of thousands of dollars getting into the loan. The interest rate on the amount you owe is also higher than forward mortgages, often two to three points higher.

Ultimately, the issue of whether the reverse mortgage is a good idea is very controversial. Opinions differ, but most feel these are not good loans when compared to the many options available and you should explore those options.

Article Source: http://www.articlemap.com

Barry Waxler alerts consumers to the disadvantages of a reverse mortgage at UFCAmerica.com.

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