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Do reverse mortgages ease retirement worries?

Some might imagine the benefits of retirement to include a more relaxed schedule and fewer debts. For example, children might be grown, a house mortgage might be paid off, and retirement accounts may have vested. Why, then, are some retired Americans exploring a reverse mortgage?

For readers unfamiliar with the term, a reverse mortgage is a unique type of lending arrangement. In fact, the U.S. Department of Housing and Urban Development has a reverse mortgage program for the stated purpose of providing older Americans with greater security. Homeowners who are age 62 or older can withdraw some of the equity in their home without any obligation to make loan payments until their passing or in the event the home no longer serves as their principal residence. 

In one sense, a reverse mortgage might be viewed as similar to a home equity line of credit. A reverse mortgage does not impose monthly principal and interest payments during the borrower's lifetime, although a borrower is still obligated to pay real estate taxes and certain other administrative expenses and abide by the terms of the mortgage. The repayment of interest is not triggered until the borrower's move to another principal residence or passing. In the latter case, the individual's estate and/or heirs may need to ensure that the finance charges and other debts are repaid.

As with other types of mortgage financing or refinancing arrangements, a real estate attorney can turn a critical eye to the fine print. For example, there may be unfavorable terms even in a program administered by a federal government agency. An attorney can help an individual clarify his or her objectives to see if this type of real estate mortgage financing arrangement is a good fit.

Source: The New York Times, "Parents, the Children Will Be Fine. Spend Their Inheritance Now," Ron Lieber, Sept. 19, 2014

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