Reverse Mortgage History and Basics

Life hardly ever goes as planned. At some point in our lives, we all find ourselves suddenly switching from plan A to plan B and in most cases, we even move on to plan C, all in a moment’s notice. Ideally, we’re supposed to find a job, work hard, save up and buy a home to raise a family which sounds like a rock-solid plan. Then, there’s the reality of it all. What if there’s a natural disaster? Or, the company you work for merges with another and your job gets cut, or a global pandemic shuts down the economy? As head of household, one has to do what’s best for you and your family, and sometimes that may require taking out a reverse mortgage.

What is a reverse mortgage?

A reverse mortgage is basically a loan, against your home; until it isn’t. Let’s say you bought a home but due to unforeseen reasons, you fell behind on payments. For help, you decide to seek out a reverse mortgage lender who signs you to an agreement, paying you monthly in exchange for equity in your home..Equity in this case being the value of your home, after any charges and deductions against it. So you’re basically selling your home to the lender, and as opposed to paying one huge lump sum, they will pay you monthly. Hence, “reverse mortgage.”

What is the purpose of a reverse mortgage?

The purpose is to get monthly financial assistance from a lender/buyer. The exact details of the agreement will depend upon the lender, but generally, the funds are used to pay off the original mortgage. However, most reverse mortgage loans do not require that the lent money be spent on the mortgage which makes it highly desirable.

When did reverse mortgages begin?

The very first mortgage took place on U.S. soil. A woman in Maine was in jeopardy of losing her home and sought help from a local loan company, who drew up a special loan to help her. Over the years, the terms and process have changed dramatically, but they are still rooted in serving the same purpose.

What are the risks of a reverse mortgage?

The general agreement is for “X” amount of money per month, the borrower agrees to maintain property taxes, insurance, repairs, to not move away from the property, nor file for bankruptcy. As stated before, each lender sets their own terms in the financial agreement. That said, there are lenders who may conduct themselves in a manner that is untoward, thereby taking advantage of unknowing, vulnerable clients. Outside of that, the conditions of the agreement can in fact result in losing the home, or worse, the loan may have to be repaid if the receiver does not hold up their end of the agreement. So while this process can be quite promising for some, it can also be a gamble for others.

If you’re considering a reverse mortgage, be in your mortgage loan research. Speak with people who have been or are in your current situation to find out what works, and what doesn’t. Take time to understand the agreement language, and be sure to have plans A, B and C on standby, in the event of life’s little disasters.

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