Word To The Wise: Reverse Mortgages - A Blessing or Curse?
by E.A. Roberts
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The credit crisis has reached epidemic proportions. Homes with adjustable rate mortgages are being foreclosed on, parents are now beginning to have difficulties obtaining student loans, and home equity loans are becoming the next serious trouble spot looming on the horizon. In consequence, the nation is now spiraling into a recession with the value in homes plummeting. Banks are tightening credit requirements, with everyone holding their breath to see how bad things are going to become.
Interestingly enough, home equity loans, also known as reverse mortgages, have become a recent hot topic of conversation locally. An article appeared in the March 27, 2008 Davis Enterprise, with the headline, “Are home equity loans next round in credit crisis?”. Yet paid advertisements on the subject have been materializing within the pages of the same newspaper, with the caption, “Yolo County Seniors Discover Simple New Way to Solve Nagging Money Problems!” By the way, the words “Paid Advertisement” appear in very small print at the top of these ads, which many seniors would have difficulty reading.
What is a home equity loan, also called a reverse mortgage? It is a loan against a home that does not have to be paid back for as long as the owner lives in it. With a reverse mortgage, the value of the house can be converted into cash without having to sell and move out or repay the loan. The owner taps into whatever “equity” has built up in the home over time. The cash received from a reverse mortgage can be paid out by the lender (mortgage lender, bank, credit union, or savings & loan association) to the recipient in several ways: all at once in a lump sum (which can be used to pay off an existing mortgage; or an annuity can be purchased); regular monthly cash advances:...
