Top 10 Reasons Homeowners Get a Reverse Mortgage
By now, most people know why reverse mortgages got their name: the cash flow is reversed. In a traditional mortgage, the homeowner makes monthly payments to the lender and the equity in the property increases as the mortgage balance decreases. The best feature of a reverse home mortgage is that the senior homeowner (62+) does not make any payments on the loan. Once the reverse equity mortgage has been approved, the funds are disbursed to the borrower according to the payment options they’ve selected, which vary from a lump sum, monthly payments, or a line of credit.
The convenience and flexibility of these features have made reverse mortgage loans hugely popular among senior homeowners in recent years.
This article provides some interesting data about why older homeowners ultimately decide to take out a reverse mortgage loan. The following list defines the top ten reasons why homeowners took out a reverse loan in 2007:
1. Pay off mortgage (20%)
2. Home repairs/improvements (18%)
3. Improve quality of life (14%)
4. Everyday expenses (10%)
5. Emergencies/unexpected (9%)
6. Pay off non-mortgage debts (7%)
7. Health or disability (5%)
8. Property taxes/insurance (5%)
9. Financial help to family (2%)
10. Investments, annuities, or long-term care insurance (1%)
There are no big surprises on this list. Most of the reasons given could be categorized under ‘financial necessity,’ which confirms the beliefs that reverse equity mortgages are generally used as a ‘last resort’ measure. This fact actually reaffirms the benevolent nature of reverse mortgage loans, because the loans provide help and positive financial options for seniors.
Number three on the list, however, being ‘improve quality of life,’ implies that a significant number of senior borrowers are taking out reverse mortgages for luxury items such as travel, RVs, and even small everyday luxuries like entertainment.
The fact that this list is not very “top-heavy” reinforces that every borrower is unique. The funds from the reverse mortgage can be used in anyway the homeowner the homeowner deems fit. The entire loan disbursement can be moved into investments, or the borrower can spend the money any way they wish.