Can Reverse Mortgages Help Owners Avoid Foreclosure?

No doubt about it, reverse mortgages have become far more popular in the past year than ever before. You have to wonder if such an increase in public attention is due just to better marketing and greater product acceptance or, otherwise, is something else at work?

If something else is at work than what might that “something” be? It’s just a guess but could it be that reverse mortgages are increasingly seen as a way to avoid foreclosure?

Consider the case of someone who reaches age 62 and life has been reasonably good to them. They had a good job and a good career, they have money and an IRA or a Keogh and they even qualify for Social Security. Sounds pretty good but over the years they have also accumulated massive amounts of debt sending kids to college in paying for what most people would consider the good life.

In other words everything looks pretty good except for the manner of their home mortgage. Between a first mortgage and a line of credit they owe $300,000 on a home that over the years is now worth $750,000.

What to do? Get rid of that real estate financing and replace it with a reverse mortgage. Like magic, a $2500 a month cost disappears and with it retirement is a whole lot more plausible.

Yes, it’s true that the kids will have less to inherit. But in any event an estate would still have to pay off that first mortgage and the line of credit. To a large extent, what we really have here is not the elimination of debt but rather the rearrangement of personal finances.

Of course, if it happens that our 62-year-old is facing financial ruin because a toxic loan is about to turn really ugly, then the use of a reverse mortgage may be more than good financial planning, in such circumstances it may be the difference between a quiet retirement with reduced monthly costs or foreclosure and the loss of a home.

In such circumstances, a reverse mortgage may look awfully good.

As always, if a reverse mortgage is of interest, please see an attorney who specializes in elder law before signing any paperwork.

This entry was posted on Wednesday, November 7th, 2007 at 8:48 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.