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Home Equity Loan – A Reverse Mortgage
Could Provide a Comfortable Retirement!
only comprising about 1% of all mortgages, the reverse mortgage has gained in
popularity in recent years. Federally insured since the late 1980’s, the
reverse mortgage allows owners of paid-off homes to borrow against the equity
in their homes in the form of a lump sum, a line of credit, or in the form of
monthly payments. The loan is repaid when the owners die or when the home is
sold or no longer occupied.
In the early years of its existence, the reverse mortgage was regarded as a
“last resort” step to avoid foreclosure, pay medical expenses or keep the home
from disrepair. More recently, however, retirees have been finding creative
ways to use the equity in their homes to allow their retirement years to be
more enjoyable.
The huge growth of the housing market during the last five years has left
millions of homeowners with large amounts of equity in their homes.
Californians who bought homes in the early 1960’s at modest prices are now
retiring; many of them have home equity in the mid-six figures. With that sort
of equity, homeowners are using their equity to buy recreational vehicles,
boats, luxury vacations, and even second homes. The structure of a reverse
mortgage makes it possible for some homeowners to pay cash for a vacation home,
while continuing to live in their primary residence for as long as they like,
or are able. Once they die, the primary residence would be sold to pay pack the
loan, while the second home would become part of their estate.
This has provided a rare opportunity for many couples, who struggled to raise families
and pay mortgages during the working years, to enjoy a few luxuries in their
retirement years. Couples who could never afford to travel can now dip into
their home equity and see Europe or take that cruise that always eluded them.
While this may seem like a win-win situation for all involved, those in the
lending industry express caution. For most people, the equity in their home is
their single largest asset, and borrowing against it should done only after
careful consideration. What if a lengthy hospital stay became necessary? Would
the homeowner have sufficient funds to pay for that after buying a second home
through a reverse mortgage? What if a husband or wife became incapacitated and
required permanent housing in a nursing home? These are things that must be
considered before using home equity for a houseboat or RV, and those
considering such a move should consider discussing their plans with a financial
advisor.
Despite the potential drawbacks, the use of the reverse mortgage to fund a fun
and adventurous retirement seems to be growing. With interest rates still near
all-time lows, the trend will almost certainly continue in the near future.
©Copyright
2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a
firm devoted to informational Websites, including http://www.End-Your-Debt.com/
and http://www.HomeEquityHelp.net/
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