Reverse Mortgages: The Joy of No Payments

j0409727.jpgFor many of us, we look forward to the time when we no longer have any mortgage payments. It is something we look forward to as it will increase our monthly cashflow during our retirement years. It will allow us to have more freedom and do some of the things that we have always wanted to do: travel, purchase some amenities, etc. It will allow us to feel more free with our life!

Many years ago, it is my understanding, that people use to have “Mortgage Burning Parties.”  Now this was before my day, but to finally get out from under a house payment and fully own one’s home was a great accomplishment. So friends and family gathered for a celebration.

Today we look back at those days and think about the simplicity of life.  Our world is much different today. I’ve read school posters that hung in the hallways of schools and read the rules of conduct: No chewing gum, no long hair, no cursing, etc. Today, we are troubled by much more serious issues. Things are more complicated, or so it seems.

One of the common concerns in the “old” days among seniors was “Will I live long enough to enjoy my retirement?” The average life expectancy in 1900 was around 47 years old. Today we are expected to live on an average of 77+ years. And it will continue to grow. By 2050 there is expected to be over 19 million people 85 years or older. As all as I can say is “Wow”! For those who have not paid off their mortgage, that is a long time to continue making payments on a fixed income.

It brings me to this point: we use to only have to plan on living a few years after retirement. Today, one of the longest life stages is retirement. If we are living longer, we need more money to survive those retirement years. I am finding that many seniors did not plan on living as long as they have, and their money is running out. Whether it be that things are getting more expensive, they didn’t plan accordingly, or that we just have more years to spread out our savings, we find ourselves financially strapped.

The idea of a reverse mortgage, though fairly new compared to many financial products, has been around since the 1960’s. It was not a very good financial product at that time, however, as it did not have the safety measures that it has today. But it was used in fairly desparate situations when people needed quick cash and were willing to risk losing their homes. Unfortunately, some did. Today, all of those risks are virtually gone and seniors do not have to worry about their homes being taken over by the lender.

Today, reverse mortgages are Non-recourse. This means that the only security in the loan is the property. At no time will other assets be used to pay back the loan. The loan payoff balance can NEVER exceed the value of the home. Also, the owner of the home is still the OWNER OF THE HOME. They don’t sell it to the lender. In fact, each person on the title is required to meet the age qualification of 62 years old. The plan simply allows them to access their equity, payoff any remainding mortgage balance, and not have payments for the extent of the time they live in the home. By paying off the mortgage and having no more mortgage payments, we can once again see all of the reason to throw a party.

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