The Case For The Reverse Mortgage

Consumer Reports says reverse mortgages can be good for people in their seventies who have a pressing need for cash.

Those in their sixties should try other means to get money in hand.

There are always options — in mortgages and in life.

That's one of the key things I learned in two years of therapy.

Anyone who is at least 62, has significant equity in a home and has a mortgage that's nearly paid up probably knows by now that he or she is eligible for a reverse mortgage, thanks to mail solicitations and TV ads that tout their potential advantages.

But reverse mortgages are complex and expensive, according to the editors of Consumer Reports Money Adviser. For some eligible homeowners, the loans are a costly means of tapping cash that could be accessed more prudently some other way. For others — especially financially distressed homeowners in their 60s — reverse mortgages will ease their money troubles in the short run but could leave them in even worse shape when the cash runs out. And some reverse-mortgage providers are using hard-sell or deceptive techniques to pressure seniors into taking out loans they don't need.

But for people in their 70s whose other assets are dwindling or who face long-term care or medical costs beyond their means, a reverse mortgage could be a solution. Because reverse mortgages are complicated, CR Money Adviser put together a guide in its May 2008 issue that makes them less overwhelming.

How Reverse Mortgages Work

With a reverse mortgage, homeowners borrow part of the equity they have in their property, and the principal and accrued interest are repaid only after they die or move out. Over time, the owner's equity diminishes while the amount of the loan increases — the opposite of a traditional mortgage. Unless someone falls behind on taxes or allows the house to slip into disrepair, the lender can't foreclose on the property, even when individuals live many years beyond expectations and the size of the debt surpasses the value of the house itself. In most cases, the proceeds of a reverse mortgage can be taken in a lump sum, an open line of credit or as monthly payments.

Weigh Other Options

CRMA experts advise that younger people — say, in their 60s — who are facing financial difficulties should probably avoid a reverse mortgage. Odds are that such a loan would quickly swallow their credit line and sacrifice their home equity without being a long-term solution to their problems.

For those who can afford the monthly payments, try a home-equity loan or sell the home and use some of the proceeds to buy a smaller, cheaper one.