Reverse Mortgages are some of the best real estate vehicles that mainly benefit the senior population that own real estate. The most vulnerable part of the majority of senior’s lifespan begin at their ages above 50 years old. This type of financing would be a panacea if the overwhelming majority of seniors who owned real estate have home equity in their properties. Eighty percent of people that are 70 years of age own real estate. All of its amenities add up just like a pension.
The reverse mortgage is a financial vehicle that allows property owners who are of a certain age the right to continue living in their residential properties and not have to pay any mortgage payments as long they are alive with certain prohibitions. The financing is based upon the amount of home equity that exists in the property. Also if enough equity exists the property owner can ascertain a lump sum payment along with not being required to pay a monthly mortgage. The property owner’s name remains on the deed and is required to live on the property. The only exception pertains to 4 unit apartment buildings. As long as the property owner lives in one of the units this type of financing can be used and the property owner still receives rent from the tenants in the other three units.
The target population are all persons 62 years of age and older that own residential real estate that they reside in and have equity in the real estate at the time of doing a reverse mortgage. According to Riskspan seniors hold 3.3 trillion dollars in home equity. This financing vehicle can also be used for real estate purchases in all states of the United States except for the State of Texas. Ginnie Mae and HUD eliminate all of the risk in reverse moorage financing.
Also they are being introduced at a lower level in France and Italy. For instance in Italy it is common on a small scale for senior to get offer on their property where they will not have to pay any monthly mortgage and receive a proportion of property value lump sum payment in advance. The prospective buyer does not take possession of property until the property owner dies. It is called a nuda proprieta. Also in France the reverse mortgage is called a viager where the buyer does not pay a pension and make a lump sum payment. You have to be 55 years of age in the United Kingdom and 62 in China where it is an emerging industry.
I know many people argue against the reverse mortgages, but the most important question is how long does the property owner expects to live and is there any other arrangements for the property owner to live some where else. It is culturally difficult for many households to agree with this type of vehicle when children expects the property owner to leave behind an inheritance. I suggest that all of the priorities should be identified and from that perspective is where families should put there minds together and make good strategic management decisions.