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Responsible Reverse

One of the most powerful financial tools for seniors in retirement is a Reverse / Home Equity Conversion Mortgage. It isn't a fit for everyone, but in certain cases it is a major piece of your retirement planning puzzle.


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Reverse mortgages aren't for everyone, but they have gotten a bad rap and are the subject of a lot of misunderstanding. They are not a scam to rob seniors of their homes. Quite the contrary, reverse mortgages are a government-backed and guaranteed (FHA) program to help seniors with home equity to retire and "age in place."


They are called "reverse" because they work as a mirror opposite to traditional "forward" mortgages. In a forward mortgage, a borrower slowly pays the loan amount off to build equity in the home. In a reverse mortgage, a borrower uses the captive-stored equity in a home to cover the interest due. 

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There are several ways to put reverse mortgages together, but most people take a lump sum of cash (if there is enough available equity) and then stop making payments. Imagine the financial flexibility and freedom that comes with unlocking that dead equity and the cash-flow from not making a mortgage payment!

One of the biggest concerns that people have is whether they lose control or ownership of their home in a reverse mortgage. The answer is an emphatic, NO! Borrowers who use reverse mortgages have full title to their home and can sell it at any time. The difference is that the government has designed this for borrowers who intend to stay in their homes. So if you need to move out, then you would need to proceed with a sale of the home. At that point, it is like any other sale where whatever equity is left goes to the owner, not the government.

But can this result in seniors losing their homes if the equity is exhausted? Again, this is the beauty of the program. The initial loan structure is calculated in a way that makes running out of equity very improbable. And even if the equity is exhausted and the loan exceeds the value of the home, the government "eats" the equity shortfall at the time of sale. Seniors are still responsible to pay their taxes and insurance on the property (unless a special holdback is structured), but they can live out their days in the home with no fear of foreclosure.

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