California Reverse Mortgage-Boom or Bust

In this hostile economic climate we tend to constantly worry about our security; money, jobs and even our homes. It's no wonder people who have retired are looking for a way to pay those extra bills, go on that holiday or are searching for a little extra income to help with those everyday living expenses. Can a reverse mortage help?

What is a Reverse Mortage?

A reverse mortage allows a person over the age of sixty (who owns their home free and clear), to borrow against the equity of their home for cash payments. The reverse mortage works by borrowers either choosing a lump sum payment or monthly payments of a few hundred dollars to help with living expenses, bills, holidays, whatever they choose; their home becomes their "bank". This is why it's called a reverse mortgage - instead of the borrower paying back the lender, the lender pays the borrower! The money given is then paid back to the reverse mortgage lenders with interest after a set number of years, or when the person moves home or passes away. The California reverse mortgage works in the same way, it allows people over the age of sixty to access equity the equity in their homes for cash to splash. The reason the California reverse mortgage comes under its own heading is because it can be a different experience, borrower's rights are better protected and it is a potentially massive market with over two million Californians' eligible for the California reverse mortgage.

The California Reverse Mortgage and You - Sounds Sunny!

The California reverse mortgage is an option if you're over sixty. California has a Reverse Mortgage Elder Protection Act which inhibits banks from taking advantage of the elderly citizens who may be looking to use the equity in their home for cash payments. It provides not-for-profit reverse mortgage lenders to assist the elderly citizens with making their decisions, so as they are not coerced into making a decision to profit the banks. Even though, in the end they are the ones who win out-as always!

Is the California Reverse Mortgage Really for Me?

It's for everyone over sixty who owns their home or is close to it. It's perfect for elderly citizens who don't ever want to leave where they are currently living; due to the fact that as soon as they leave they must pay the debt. No payments on the debt are made during their lifetime either, unless they move house. Under the Reverse Mortgage Elder Protection Act, in California the borrower is also guaranteed the right to stay in their home, they cannot be forcibly removed from of their home to pay the debt and the payments are not taxed either, so the borrower gets every penny!

Sound Great!

For those who see this as a brilliant opportunity there are many reverse mortgage lenders out there. Reverse mortgage lenders are usually good retirement funds, look for a reverse mortgage lender with a competitive interest rate and a good track record of, at the very least, a good few years. Borrower's own personal banks may also already be reverse mortgage lenders. Also, if the borrower should choose to move home and pay the loan back, or if they pass away and the loan is paid back, the interest on the loan is tax deductible.

Back It Up; Is This Really Such a Good Idea?

It sounds too good to be true! Have you weighed up the pros and cons in terms of getting a reverse mortgage? Just like any other financial decision this is not to be made lightly. A California reverse mortgage is just like taking on any other loan. Don't get caught up in the idea of a lump sum payment or monthly payments. It's still a loan, therefore is still a debt. One that may have to be paid back to the reverse mortgage lenders by your children should you pass away before you repay the debt.

One way debt is usually paid back whilst the borrower is still alive is the family home is sold to repay the debt. Do you want to part with your family home? Another drawback may also be the interest rate, quite often due to the interest rate, borrowers end up paying back much more than what they borrowed. Reverse mortgage lenders can also involve third parties, who don't fully disclose the terms and conditions within the contract, therefore catch a elderly citizen later on in life and financially hinder them. Front and back end fees on top of interest may also drive up the cost of the California reverse mortgage.

Think Before You Leap!

Whereas the reverse mortgage is a great option for some, others may need to think before they leap into the world of reverse mortgages. If you're planning to sell or leave your home in the next few years or more, look at other ways to supplement your income. And if you're ready to make the leap for some extra cash to splash then make sure you read the fine print and are thoroughly counselled on your contract before signing the dotted line!

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