Don't Tell Your Children About Your Reverse Mortgage!

Some years ago, there was a skit on a television comedy show that preached just that - if you get a reverse mortgage, don't tell your children about it! Why did they say that, and why would people find humor in this? What is a reverse mortgage anyway?

In some ways, a reverse mortgage is like a home equity loan. You are able to get a lump sum cash, or monthly payments, against the equity you've built in your home. However, a reverse mortgage is usually only available to senior citizens aged 62 or older; this is unlike a home equity loan that is typically available to anyone with acceptable credit that has some equity built up in their home.

Also, when you get a home equity loan you usually need to begin paying it back in monthly installments right away. You receive a lump sum check up front and then need to pay it in amortized amounts every month. But with a reverse mortgage, there is no obligation to pay back the loan until the homeowner dies, the home is sold, or until the homeowner leaves the home such as to go into a nursing home or other establishment.

There are some requirements when it comes to a reverse mortgage. For instance, in the United States, there can be no other mortgage obligations on the home. This is unlike a home equity loan where you can still be carrying a regular mortgage and where you can receive more than one loan against that equity. If someone applying for a reverse mortgage still carries part of the original mortgage on the home, the monetary amount from the reverse mortgage must first be put toward the balance of the original mortgage; monies over and above that are then yours to use as you see fit. You don't need to make home improvements or do anything else with this sum according to the lender's requirements.

Also, a borrower needs to go through some free financial counseling sessions provided by the Department of Housing and Urban Development so that he or she understands all the terms and requirements of a reverse mortgage.

Perhaps that comedy skit understood what many people today also understand about reverse mortgages - they're a great way to get cash from your home while you're still alive and living in it, but are a poor investment and financial tool in the long run. When a homeowner dies and leaves a reverse mortgage, this means that unless that sum can be paid back immediately, the bank takes possession of the home. Many children of aged parents are caught unawares that this is the case and have sadly seen their childhood home being seized by a bank after the loss of a parent. Yes, that homeowner has the right to do whatever he or she sees fit with their home, including taking out a reverse mortgage, but how much better it would be if they were to at least alert their children so that there are no surprises after they're gone.