Why Reverse Mortgages Can Be a Great Idea

As our population ages, you're going to hear more about reverse mortgages (called "lifetime mortgages" in Britain). But most people don't have any idea what they might be, or how they can help our elderly live a dignified and happy life.

A reverse mortgage is a bargain between a lender and an older person that the lender will provide the homeowner with money, usually in the form of a home-equity-style loan or line of credit. In return, the homeowner agrees that when they die their home will be turned over to the lender.

This is a very powerful form of lending for the elderly. Fifty years ago, homes were left to one's heirs, who were sometimes numerous. Today, more and more elderly homeowners don't have heirs -- which means they also don't have anyone who can care for them as they grow increasingly infirm. Our elderly population is left without loving relatives to care for them, though they often have great material wealth.

Yet most of our wealth as a nation is contained in our properties. While a 65-year-old man may own an estate of $500K on paper, it is likely that most of that estate is contained in the equity of their homes, businesses, and vacation properties. The older you get, the less attractive a loan prospect you are -- and with the fixed income retired seniors often depend on, a loan is probably unpayable as well.

so what do these homeowners do when disaster strikes -- when cancer treatment is necessary, when prescription medication isn't completely covered, when storm or flood damage makes it vital to repair a home?

Obtaining A Reverse Mortgage

In the United States, homeowners who want a reverse mortgage must be at least 62 years old, and all outstanding mortgages on the property must be paid from the reverse mortgage (and personal funds, if necessary). Your income and credit rating may not matter. You may even be able to get a reverse mortgage on higher-end mobile homes and/or the land your home rests on.