As our nation's population ages and as home prices and sales continue to be depressed, interest in reverse mortgages is growing sharply. As a result, more and more lenders are competing in this market. So this may be a good time for you to investigate whether a reverse mortgage is the right move for you.
What is it?
A reverse mortgage is an arrangement under which a lender makes payments to you for your home's equity, and the proceeds are generally tax-free. The loan doesn't come due until you sell the home -- at which time you may be able to deduct the interest on your tax return -- or die. If the lender sells the house to pay off the loan, it will return any amount exceeding the outstanding balance to you or your estate.
As mentioned, the reverse mortgage market is, if not exploding, at least making some noise. A plethora of bigger mortgage lenders and banks now offer products and, to stay competitive, some have lowered fees and allowed more substantial payouts. A number of lenders even offer so-called "Jumbo" reverse mortgages for more highly valued houses.
What's more, additional loan backers are getting in on the fun. Previously, Fannie Mae was the primary buyer of reverse mortgages. Now several other banks have joined in.
Using the payout
For many years, reverse mortgages were looked at as a last resort for those living in valuable houses, but lacking cash. The arrangements often provided a way to fund medical expenses, hospital stays and even nursing home residences.
In light of the reverse mortgage surge, however, things are changing. Many higher net-worth individuals are using the arrangements to supplement their retirement income, allowing them to take trips or buy recreational vehicles. Some are even taking out reverse mortgages to fund the purchase of a vacation home.
While these are all perfectly understandable uses for a reverse mortgage, don't overlook the estate-planning potential of the product. This can get complicated, so you need to discuss your particular situation with your tax adviser.
Naturally, reverse mortgages aren't risk-free. With the expanded availability of these arrangements has come greater complexity in how interest and fees are calculated. Find a deal with low fees and you may wind up paying a higher interest rate -- or vice versa.
And, of course, there are other financing options -- such as a home equity loan -- you might consider. Nonetheless, the way things are going, this may be a good time for you to look into the feasibility of a reverse mortgage.
Norm Grill is a certified public accountant and managing partner of Grill & Partners LLC, accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Greenwich. He can be reached at n.grill@GRILL1.com