The Stanly News and Press (Albemarle, NC)

Opinion & Letters to the Editor

August 26, 2013

Reverse mortgage: Is it the right thing?

Monday, August 26, 2013 — Robert Wagner, Henry Winkler and Fred Thompson are each actors. Wagner’s career has spanned half a century in both films and TV. Winkler is best known as the Fonz on TV’s “Happy Days” and Thompson has sandwiched an acting career around a stint in the U.S. Senate.

Besides acting, the trio has something else in common. They are spokespersons for different companies offering a financial product called a reverse mortgage. But what exactly is a reverse mortgage, and is it something you should consider?

To start, let me first talk about a traditional mortgage. A mortgage is simply a large loan used to purchase a home. Such a loan can easily total several hundred thousand dollars, and the loan is secured by the value of the home, meaning that if the buyer can’t make all the loan payments, the firm making the mortgage takes possession of the home.

The mortgage is usually repaid over a long period (30 years is common) by the homebuyer making monthly payments. Each payment has a part that reduces the amount of the loan and a part that pays interest on the loan. If the homebuyer sells the home before the mortgage is completely repaid, proceeds from the home’s sale will be used to pay off the remainder of the loan. If the home’s value isn’t sufficient to repay the mortgage, then the home is said to be “underwater,” and the owner obviously faces a financial problem.

If a homeowner is 62 or older and owns a home free and clear of a traditional mortgage, the owner can consider a reverse mortgage. The name is based on the fact that the circumstances for a reverse mortgage are the opposite of the circumstances for a traditional mortgage. In a reverse mortgage, the person owns the home with no outstanding loan; in a traditional mortgage, the person is buying the home and uses a loan (debt) to do so.

For a reverse mortgage, the person receives money; in a traditional mortgage, the person pays money. And although this certainly isn’t always the case, people using a reverse mortgage are often near the end of their lives, while users of a traditional mortgage are much younger.

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