Many older homeowners in the Pasadena area want to figure out a way to tap into the equity value of their home without having to sell it or take out a potentially hazardous home equity loan. One way is to use a reverse mortgage. Although many people misunderstand how these unique mortgages work – or are skeptical of them because of the fact that years ago they were generally bad, predatory loans – today’s reverse mortgages are often a sensible option.
With a typical reverse mortgage, the role of lender and homeowner is reversed. The lender makes payments to the homeowner, instead of the homeowner making payments to the mortgage company. This happens because in exchange for a stake in the equity of the home the lender agrees to pay the homeowner for as long as they live in the house. If the homeowner moves or sells, the reverse mortgage contract ends.
After the death of the homeowner the lender who has been making payments is entitled to its share of the value of the home, so they take over the property and sell it at a profit. But if the property value has dropped so that the reverse mortgage lender loses money, that loss cannot be claimed against the homeowner’s estate or the homeowner’s heirs. Those lenders who gamble on making a profit but lose out because real estate prices fall have to just swallow the loss themselves.
Reverse mortgages are only available to those Pasadena homeowners who are at least 62 years old. Those who have lots of equity in their home or either own it free and clear are the best candidates for this kind of product. They can get access to cash this way without having to move or sell their home, and then they can apply the cash to monthly expenses, health care costs, and other needs. The homeowner can choose to receive the payments in monthly installments, a lump sum, or a combination of both.
Do keep in mind that there are fees and closing costs involved with setting up a reserve mortgage. For that reason any Pasadena senior citizen thinking of doing a reverse mortgage should consult a knowledgeable financial planner, credit counselor, or lender to make sure this kind of financial arrangement is beneficial for them and their particular circumstances.
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