In the U.S. demand for reverse mortgages is soaring. Karina Huber reports with more on the risks and rewards of these complicated products.
Numerous studies show that a startling number of U.S. seniors do not have enough money saved to retire. Even so, the one thing many have is a home, which is often their biggest and sole asset. Increasing numbers of seniors are looking at their home as a source to fund their retirement through reverse mortgages, available to people in the U.S. over 62.
About $15.3 billion dollars’ worth of those loans were given out in the U.S. in 2013. That’s an increase of 20 percent from the year before. Experts say reverse mortgages, where the bank pays you tax free money for equity in your home that you don’t have to pay back until you die or move out of your property, should be an option of last resort.
U.S. demand for reverse mortgages soaringIn the U.S. demand for reverse mortgages is soaring. Karina Huber reports with more on the risks and rewards of these complicated products.
The interest rates and origination fees on reverse mortgages are often higher than other equity loans. If you need to go to a nursing home and leave your home for a year, the bank can seize your property. You also can’t leave your property to your heirs.
Elder law attorney Deborah Ball says children are often concerned when they find out parents have taken out a reverse mortgage. She says she only recommends reverse mortgages when her clients are older, have no other funds and plan on hiring live-in nursing help.
In those cases, experts say, a reverse mortgage can make sense. It used to be that your spouse would have to leave the house after you die when an individual took out a reverse mortgage. Now the rules have changed and spouses can continue to live in the property so long as they didn’t cosign the reverse mortgage.
Even so, spouses are then responsible for the home insurance, property taxes and maintenance on the property.
For more on reverse mortgages in the U.S., CCTV talked to Anil K. Gupta. Gupta is a Professor of Strategy, Globalization and Entrepreneurship at The University of Maryland’s Smith School of Business.