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Michael Gonzales
Real Estate
2008-07-01 15:11:00
Reverse mortgages: good or bad?
Answer: The term ‘reverse mortgage’ is still misunderstood by most people today. Basically, a reverse mortgage is a non-recourse loan that allows senior homeowner 62 or older to extract the equity of their home and convert that into cash. This differs from a traditional mortgage or home equity loan because there is no repayment required as long as the home is used as your primary residence (you will still be responsible for paying property taxes and homeowner insurance). Once that is no longer the case the principal and accrued interest are repaid. So in a way you are ‘spending’ your home, instead of your savings or retirement. Borrowers of this type of financing can choose to receive the funds as a lump sum, monthly income for life, in a line of credit, or a combination of the three. The funds from this mortgage are tax-free (Consult Tax Advisor) and will not effect your retirement or social security. The funds are only due payable once the homeowner(s) has permanently moved out. The repayment amount can’t exceed the value of the home. The best part of this type of financing is there are many consumer protection features integrated into the process. Everyone that is interested in this type of financing must attend an educational counseling course in order to proceed with the loan. This gives the homeowner a chance to ask questions and express concerns to a non-affiliated third party. Although, this can be a great tool for seniors to eliminate a mortgage payment, debts, set up an income stream, help pay for medical cost, or renovate their house, they need to understand that this is done by taking out a new loan and they are financing it. But for those who do their research and get a clear understanding of this product, it can help them make ends meet when cash runs dry. In regards to your comment about asking for help from someone who doesn’t have a hidden agenda...I understand. It used to be that a professional in an industry would stop and offer help or advice without worrying about what he or she is going to make from doing it. I often think how great it would be great to get back to those days. Perhaps the business world is moving so fast and has become so competitive that many business people have forgotten how valuable pubic relations can be to them in their business, to stop every once in awhile and offer some free advice or counsel. That’s what I would like to do in this column. If you have any kind of questions regarding anything to do with finance, I welcome them and will be happy to related to you what I know. Until next month...
 
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