Reverse Mortgage - Tapping Into Your Home's Equity

By Mark Bonders for mortgage-and-loan-info.com

A reverse mortgage is a type of mortgage specifically designed for equity-rich seniors aged 62 years old and above. Lately, reverse mortgages have increased in popularity and usage because many seniors feel that their Social Security, pension and lifetime savings are not enough to meet expenses in today's world. Reverse mortgages, however, is not as simple as computing what you can get from a mortgage payment calculator. Reverse mortgages can be very complex and as such requires a lot of thinking and evaluation.

At its most basic definition, reverse mortgages are mortgages the elderly can take against their equity in their homes. Say you bought a house in your younger years for $100,000. At current market rates, your house is now worth $175,000, you can now avail of reverse mortgages based on this amount. You can use the money for your daily living expenses and you don't have to worry about repayments as there are no monthly loan payments to settle. However, if you took a $20,000 mortgage then this means that you now owe your house $20,000 less. Of course, as you own the house, it is your right to use it as you deem fit. Just be aware that the more you avail of reverse mortgages, you are slowly losing ownership of your home.

A common misconception when it comes to reverse mortgages is that you cannot avail of it if you still have an outstanding mortgage on your home. This is not so; you can avail of reverse mortgages even if a first or second mortgage is running against your home.

So what then is the risk of engaging in reverse mortgages? You run the REAL risk of losing your home. It's good if your home's value keeps on increasing through the years but if it falls then that could be a problem indeed.