What is a Reverse Mortgage?

If a mortgage is borrowing money to buy a house slowly over time, then a “reverse” mortgage is selling a house to get money slowly over time.  Make sense?  They can be compared to annuities, because the idea is to pay you a portion of your total value every month (or whatever the agreement says), until the total value has been paid out.  In this case, the total value is your home.

Reverse mortgages are meant for retiring people who want to access the value of  their home while still living in it, until they pass on, and typically require the home to be paid off or have enough equity to make a long-term arrangement possible and profitable for the lender.  Is it of benefit?  That is completely up to those considering using the instrument.  Arguments could be made either way, but here are a few pros and cons.

PROS

  • You get monthly “payments” from the value of your home
  • You typically still get to live in your home until the end of the agreement or your passing, whichever comes first

CONS

  • You sign away your home – be sure to clarify what happens with any residual value that has not been paid to you in the case you pass on (everything is negotiable)
  • You lock in on a monthly payment – over time, the purchasing power of your monthly payment will go down as inflation goes up, so the higher the inflation, the worse it gets for you (again, check options for inflation adjustment with the reverse mortgage company)

 

Mortgage Payment Calculator

Most people’s first question, when it comes to mortgages, is “what’s my monthly payment”?  Unfortunately, many times that is the only question.  Anyway, luckily there are all kinds of resources available to quickly compute a ballpark monthly payment with a few variables like loan amount, interest rate, and length of loan (amortization).  The calculators range from very simple to very detailed, which is nice for those who really want to understand what they are getting themselves into.

http://www.mortgagecalculator.org/
http://www.mlcalc.com/
https://www.drcalculator.com/mortgage/
http://www.calcxml.com/calculators/mortgage-calculator

 

Mortgage Rates

Here are some links where you can get an idea of current mortgage rates. But what do these rates actually reflect? Well, simply put, they reflect the “price” of borrowing money against a home. Yep, the price of money… well technically credit (borrowed money), but you get the idea. Why do you have to pay extra money to get money? The answer to that is a long one and the topic for another post.

https://www.zillow.com/mortgage-rates/
http://www.bankrate.com/compare-rates.aspx
https://www.lendingtree.com/mortgage-rates
http://www.mortgagenewsdaily.com/mortgage_rates/

Any questions? Feel free to comment.