There is a growing trend among the older generation of homeowners for what are called ‘reverse mortgages’. They are called reverse because it is the householder who gets the money from the bank rather than paying it to the bank as they have been doing for the majority of their house-owning lives. More irreverently, people who take up this financial product are becoming known as the SKI generation. SKI is an acronym for ‘spending the kids’ inheritance’. And why shouldn’t they? They’ve worked hard all their lives to repay the home loans and they are nearing the end of the road with a small percentage of the capital left to repay. Now it’s time to enjoy their sunset years with extra cash on hand for all their travel, pastimes and other dream fulfilling experiences.

This financial product is designed specifically for the older householder with small amounts of outstanding secured home debt. There are no other stipulations to be met before getting their hands on all that value tied up their ‘bricks and mortar’. So there are no medicals, no credit checks and no income verification. The lifetime mortgage provides a life-enhancing cash flow regardless of the homeowners’ current cash circumstances.  It’s not really about the kids’ inheritance but rather a question of peace of mind at time of life when it is deserved. The reverse mortgagees can go ahead and make those improvements to their home, their standard of living, their healthcare or simply have a ‘just in case’ lump sum available for emergencies.As long as the ‘reversers’ continue to live, in the main, in their property it means the end of repayments.

This aspect of reverse mortgages is what makes them unique among the secured loan products. The ‘skiers’ continue to hold the title deeds of the property and not the bank or building society. If the householder survives beyond the mortgage term the lender can neither take further payments nor take possession. What is more the householder is limited to borrowing up to the value of the property. The obligation to repay the loan amount is held in abeyance until the house is sold on, the homeowner passes away or they take up a different primary residence.The cash sum a homeowner can get from the reverse mortgage varies with individual circumstances but as general rule of thumb it rises in line with both age of the borrower and property value.Local taxes and all utilities remain the responsibility of the reverse mortgagee. Bundled in with the loan amount that is repaid at the end of the term are all the costs of arranging this mortgage. There is always an arrangement fee, a one off opening fee, a termination fee (for the loan, not the homeowner), the ubiquitous insurance and finally a service charge, which is normally on a per month basis.

The interest rates on reverse mortgages are variable in line with the base rate. As and when the homeowner sells the property in question, or indeed dies, then they, or the trustees of their estate, repay the outstanding promised amounts. Any remaining equity becomes part of the estate for the heirs or remains in the hands of the borrower.There is wide range of choice of method by which the householder receives the money from this inverted mortgage deal. It is up to the householder to pick the method best suited to their needs. So for example if the mortgagee wants a monthly lump sum payment then they can choose a ‘tenure’ scheme, which will do just that for as long as the property is their primary residence.Alternatively the mortgagee can choose a ‘term’ scheme where they take an agreed number of payments of a set amount each month.

More flexible is a ‘line of credit’ type contract. With this the borrower chooses how much to receive and when to receive it up until the agreed loan amount is used up.Other choices are really variations on these three themes. Thus there is the ‘modified tenure’ where a monthly amount accrues to the borrower as long as they are in residence, along with a line of credit. Or a ‘modified term’ that also mixes a line of credit with the set number of monthly amounts.Reverse mortgages are the perfect solution to financial worries of the older homeowner. They give freedom to people to do as they wish at a point in their lives where they have the time to enjoy life to the fullest.

If you are a home owner and you need money, you can consider home equity loans as a means of raising money. Your home will serve as collateral and you can use the funds you have invested in buying or improving your home, as equity.  

Your home serves as the security against which home equity loans are given, but remember that it may have to be sold to pay off the debt, if you are not able to keep up with the monthly payments. If you need a large amount of money for medical expenses, college tuition for your kids, debt consolidation, home repairs or other necessary requirements, you can consider home equity loans.  

You can opt for fixed rate mortgages or adjustable rate mortgages. These home loans are available either as a lump sum or as a revolving line of credit. One of the benefits of home equity loans is that the interest you pay is usually tax-deductible.  The Federal Trade Commission (FTC) advises that your home may be your single most valuable asset and those who agree to take home loans based on the equity they have in their homes, may be putting their most important asset at risk. 

Homeowners must be careful while taking home equity loans, because certain exploitative borrowers indulge in abusive practices like equity stripping, loan flipping, hiding loan terms and adding extra charges. The elderly, minorities and those with low incomes or poor credit, are most at risk and these exploitative lenders tend to target them.  Lenders who indulge in equity stripping help home owners with a low income to take home equity loans that they may not be able to afford. Home owners who are unable to keep up with the monthly payments usually end up losing their homes.  

Home owners who have fallen behind in their mortgage payments and are facing foreclosure may be approached by another lender. The lender will offer to save them from foreclosure by refinancing their mortgages and also offer lower monthly payments.  Actually the monthly payments may be lower only because the borrower will only be paying interest every month, while the principal amount remains unchanged. The entire amount borrowed will be payable at the end of the loan term, in one lump sum, called a balloon payment. Borrowers, who cannot make the balloon payment or refinance the loan, may lose their homes.  

Loan flipping involves refinancing existing mortgages to raise money. Home owners who do this to raise money may have to pay high points and fees, apart from prepayment penalties. Borrowers who refinance their home loans may have to pay a higher interest rate and accept a longer loan term. With each refinancing they may take on more debt and increase the risk of foreclosure.  Unscrupulous lenders may try to trick borrowers into signing papers for credit insurance that they don’t need, or ask them to pay additional fees and costs. Others may ask borrowers to sign over their deeds, in return for saving them from foreclosure. 

Never sign any document without reading it carefully or sign a document that has blank spaces meant to be filled in later. Never consider home equity loans, if your income is insufficient to meet the monthly payments. Don’t get lured by extra cash or lower monthly payments. Use your discretion to determine whether the loan you are considering is worth the money you will have to pay for it. Before signing up for home equity loans or signing away their deeds, home owners must consult trusted and knowledgeable family members and/or attorneys.