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The Rare, Peculiar and Fascinating Reverse Mortgage is Making a Comeback

October 26, 2016

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For older investment property mortgage borrowers, there’s a certain type of loan they might have overlooked: reverse mortgages.

Reverse mortgages fell out of popularity after the recession hit the U.S. and the housing market collapsed. But as the industry continues to bounce back, owners are starting to give reverse mortgages a second look.

“A mere 14 percent of Americans have considered a reverse mortgage.”

To be eligible for these loans, owners must be at least 62 years old, or own their home outright, or be able to pay off their remaining mortgage balance at closing, according to U.S Department of Housing and Urban Development’s standards. Reverse mortgages allow homeowners to get cash for the equity in their home if they need money on short notice. This provides a means of insurance for homeowners when other investments – such as those in the stock market – are in a downturn, and it is particularly helpful for those who experience unexpected expenditures and are strapped for cash, according to The New York Times. 

There have been approximately 30,000 reverse mortgages approved in 2016, down dramatically from the high point of 115,000 in 2009, right as the housing crisis began to take its toll on the economy, The New York Times reported. Despite the uptick in approvals, many homeowners are skeptical of reverse mortgages.

A mere 14 percent of Americans aged 55 to 75 have considered a reverse mortgage, according to a survey from The American College of Financial Services. Some owners don’t apply for reverse mortgages because they don’t know enough about them, The New York Times explained. Stricter regulations have also decreased the number of buyers who would be able to afford this type of mortgage, according to Wealth Management.

But for people who want to leave their homes to someone else, reverse mortgages are not the best option. Because reverse mortgages eat into the equity on a home, the house will lose its market value by the time future generations look to sell it, or the current owners will have to continue making house payments.

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