Is your home a good investment during your old age?

October 28, 2010 · Filed Under Investment · Comment 

When a person grows old, most of the times, the only principal assets he retains is his home. Everyone wants to stay in their own homes but during the old age, many people go through some financial problems and they have to make a choice whether they should sell their homes and move to an apartment or assisted care facility or to make use of a reverse mortgage.

Most of the older people tend to do the reverse mortgage to make use of the equity in their homes. The banks with whom these elderly people have been dealing with for a long time seem to be helpful in obtaining the use of the equity in their home. There is an argument that senior citizens should be able to earn more cash on the money, if properly invested, than the home as it may appreciate.

By doing a reverse mortgage, the lender offers cash to the borrower homeowner as a lump sum amount or in monthly payments, a line of credit or a combination of both methods. The title of the home remains with the homeowner but a lien is placed by the lender on the property for the amount paid to the homeowner. The homeowner is still responsible for maintaining the property, and paying insurance and real estate taxes in time. The homeowner does not make any payments to the mortgage and that’s why interests keep accruing over the period of time.

Homeowners can fall deeper into these kinds of debts over the period of time because they will be drawing more amounts every time. After a period of time, no equity will be left on the home because of the amount borrowed equal to the value of the loan. The value of the property may go down and because of this, the amount of the loan may exceed the value of the property.

Review the fees when you do a re-mortgage. The fees for such a loan could be about 7% of the home’s value. This fee is generally added to the loan balance and accrues interest over the period of time of the loan. The fees and the interest need to be paid off before the loan terms come to an end. Certain closing costs can also increase the total amount of the loan.

If a senior citizen is trying to do a reverse mortgage to increase the earnings on the equity from the house, the yield on the invested funds is much less than what was expected while doing the reverse mortgage.

Despite the various issues, many elderly people still consider to do a reverse mortgage because of certain unexpected financial requirements. It may also be the way to stay in the same home until their death when the money runs out, even though it becomes difficult for the homeowner to leave any property to their heirs.

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