If you’ve never heard of a “forward mortgage,” there’s a reason for that. The term refers to traditional mortgages and is rarely used except in comparison with its polar opposite, the “reverse mortgage.” So which way do you want to go? Whether you go forward or in reverse depends upon where you are at this point in your life, personally and financially.
Before going any further, it should be noted that only people age 62 and above are eligible to get a reverse mortgage – and 62 is young to get one. The older you are, the more money the bank will be willing to lend to you.
If you are under 62, the closest equivalent to a reverse mortgage for you is a home-equity line of credit (see Reverse Mortgage or Home-Equity Loan?). This is a set amount of money that you can draw upon at any time, for any reason. Be very careful. You’re betting your house on your ability to repay that money, with interest. A home-equity line of credit is sometimes known as a “second mortgage.” However, a home-equity loan can only be called that if the borrower still has a first mortgage in place. If the first mortgage has been paid off, a home-equity loan is simply a mortgage.
That said, both forward and reverse mortgages are essentially huge loans that use your home as collateral – and they're major financial commitments. A couple might use a single home as collateral twice in a lifetime, getting first a forward mortgage at purchase and then, decades later, a reverse mortgage. Here’s how it works:
These are straightforward examples. The variations are pretty much limitless, but there are pitfalls to consider in each. For example:
As this fact page from the National Council on Aging shows, reverse mortgages are regulated by the federal government in order to prevent predatory lenders from snaring senior citizens. (For more, see Rules for Obtaining an FHA Reverse Mortgage.) However, the government can’t prevent senior citizens from fooling themselves. For instance:
There is one consumer-friendly note, though, in these uncertain times: The bank may not demand a payment that exceeds the value of the home. The bank recoups the loss through an insurance fund that was one of the costs of the reverse mortgage. Even better, the Department of Housing and Urban Development, which oversees the dominant reverse-mortgage program, moved in the fall of 2017 to shore up that insurance fund.
If this seems to add up to a lot of risks, there’s still the big reward of living in a home you own in an era in which few can afford to pay all cash down. Both the standard forward mortgage and the reverse mortgage allow many of us to do just that, at two key stages of our lives. Armed with the facts, and some common sense about spending, you can take advantage of them safely. (For more, see Reverse Mortgage Pitfalls.)
Complete Guide to Reverse Mortgage
Do You Qualify for a Reverse Mortgage?
Reverse Mortgage Types
Picking The Right Reverse Mortgage Lender
How to Choose a Reverse Mortgage Payment Plan
Reverse Mortgage or Home-Equity Loan?
A Guide to Taxes and Reverse Mortgages
5 Top Alternatives to a Reverse Mortgage
5 Signs a Reverse Mortgage Is a Good Idea
5 Signs a Reverse Mortgage Is a Bad Idea
How to Avoid Outliving Your Reverse Mortgage
A look at Regulation of Reverse Mortgages
Rules For Obtaining an FHA Reverse Mortgage
Find the Right Reverse Mortgage Counseling Agency
Find The Top Reverse Mortgage Companies
Reverse Mortgage: Could Your Widow(er) Lose the House?
Beware of These Reverse Mortgage Scams
Reverse Mortgage Pitfalls