Retirement can be a truly daunting phase of life for many individuals. With ever increasing living expenses and no steady flow of income, saving for retirement is a tricky task. Fortunately, the concept of reverse mortgage has made life much easier for many. Reverse mortgage is a loan in which a homeowner gets funds against the equity built up on their property (or home). The loan amount depends entirely on the value of the property, the borrower’s age, and upfront costs. Moreover, the borrower remains the owner of the home. At no point does the lending bank or company take over ownership.

1. How does a reverse mortgage work?
A reverse mortgage is only made available to senior homeowners who are above 62 years of age. To be eligible, you need to be living in your primary residence. In a reverse mortgage, the homeowner, receives monthly amounts of money against the value of the home. You can decide whether you would like monthly payments or a lump sum. A lump sum can help in case of a one-time large expense, whereas monthly payments can help to supplement regular expenses. In the case of a couple undergoing a divorce, a reverse mortgage allows for one to stay in the original home while paying for the other to find a new one.

2. Think long term. With a reverse mortgage, you must think long-term. This loan is typically payable when the homeowner passes away. The most common method of repaying a reverse mortgage is by selling the house and making a one-time payment. This can be done by the homeowner, in your lifetime or by your heirs. A reverse mortgage also becomes payable when the homeowner defaults the conditions of the mortgage by living away from the home for 12 months or more. Other ways of defaulting include not paying property taxes, homeowner association fees, or not maintaining the property. Another alternative to paying a reverse mortgage is by refinancing it into a traditional mortgage. It is extremely important to consult with family members before taking a reverse mortgage as it is they who usually become responsible for ultimately making sure it is paid.

3. Other considerations
Before considering a reverse mortgage for quick funds, it is important to keep the following points in mind:
● Applying and getting approved for a reverse mortgage is a time-consuming process. Do consider other alternatives, like a traditional mortgage.
● Reverse mortgage loans come with many fees that get factored into the approved amount. These include service fees, origination fees, mortgage insurance premium (MIP), and interest.
● Fees for a reverse mortgage are generally higher than that of a traditional mortgage.

● The loan is repaid typically by the borrower’s heirs, either by selling the house or through personal finance. Therefore, they should be fully aware of all details of the loan.
● Getting a reverse mortgage means that certain government provisions, like Supplemental Security Income (SSI) or Medicaid, may be affected.
● The loan balance increases over time as interest accumulates.

4. Research before you borrow
Reverse mortgage terms can vary between different lenders. It is important that you shop around a bit before deciding on taking out this type of a mortgage. Do explore other options of finance as well. If you are speaking to a financial planner, make sure that he/she is a fiduciary and not earning a huge commission by misleading you into a reverse mortgage you would be better off without.