Many of our clients ask if a reverse mortgage is a legitimate real estate refinancing option.

Television commercials for reverse mortgages proliferate the airwaves today, with well-known icons touting their benefits. But as the concept is not well understood by many homeowners and these loans are targeted toward the financially vulnerable senior demographic, it’s always wise to approach with caution.

What Is a Reverse Mortgage?

In a traditional mortgage or home loan, the buyer borrows money from a mortgage company to purchase the property. When refinancing real estate, the homeowner borrows money  ideally under more favorable terms  to replace an existing loan.

The buyer rarely (if ever) receives cash out from a new loan. After the real estate crisis of the last decade, most refinancing options offer little or no cash to the homeowner.

With a reverse mortgage, which is essentially a type of home equity loan, the homeowner refinances a property with little or no debt on it, and receives either a lump sum of cash or collects monthly payments from the mortgage company.

The amount of money you can borrow depends on your age, your home’s value, and the loan’s structure and interest rate.

Who Qualifies for a Reverse Mortgage?

The primary restriction on this type of loan is age, as borrowers must be age 62 or older. The home must be their primary residence, and they must either own the property free and clear or have a low balance on their existing mortgage.

Just because you qualify for a reverse home loan doesn’t mean you should necessarily consider one, however.

If you don’t plan to stay in your home, for example, this type of loan probably isn’t for you. The full balance is due and payable within a set period of time (usually 12 months) after you leave the home or after the last borrower has passed away. You also must be financially capable of paying your property taxes, homeowners insurance and the cost of any necessary repairs or maintenance required to keep the home in good shape.

Should You Consider a Reverse Mortgage?

As with any significant financial decision, the choice to refinance your home in any way requires careful consideration and professional advice. Older homeowners are advised to talk with their attorneys, accountants and tax professionals as well as family members.

The National Council on Aging provides an excellent resource for learning more about reverse mortgages, their benefits and potential risks. Scams related to reverse mortgages are always a threat, according to U.S. lending provider Fannie Mae, so always be sure to verify every detail and seek legal advice before signing any documents.

In Yorba Linda, California, and the surrounding areas, the Edie Israel Team helps home buyers and sellers of all ages. We aren’t affiliated with any lending institutions, but we work with reputable real estate lenders and mortgage professionals regularly. Many of our senior clients find that after doing their due diligence on refinance programs, that downsizing to a condo or active adult community better suits their needs and helps reduce living expenses.

Contact us today to learn more about how we can help you with all of your Southern California real estate needs. We would be happy to show you some of the potential alternatives to taking out a reverse mortgage on your home.