It's not a new method making the rounds, but there's been a recent resurgence of interest in reverse mortgage loans for retirees.
With many baby boomers struggling to save enough money to cover living expenses after their employment swan song, retirees across the country are turning back to reverse mortgages.
Borrowers increased reverse mortgage loans by 20 percent from the year prior, climbing to $15.3 billion in 2013, according to Inside Mortgage Finance. While the 20 percent jump is massive, it's still not closing in on the figures from 2009, when $30.21 billion in reverse mortgage loans were made, though future numbers could climb, according to industry experts.
"The market is huge. It's underpenetrated," said Denmar Dixon, chief investment officer at an independent mortgage company.
How to land a reverse mortgage
A reverse mortgage is popular with retirees because it acts as a home loan that offers cash payments based on home equity. In order to qualify, a person must be at least 62 years old and have equity in their home.If a retiree is granted a reverse mortgage, they will be able to access extra tax-free income and receive funds in one lump sum, regular monthly payments or as a line of credit while retaining the ownership of their home. There are also no income, employment or credit requirements, making the process relatively simple for most people. Borrowers only have to make payments when they sell their home or become the responsibility of their heirs should they pass away.
"As with any mortgage product, there is risk to financing a loan, but we have made, and continue to make, significant efforts to mitigate that risk," said Melanie Roussell, a spokeswoman for the U.S.
Department of Housing and Urban Development.
What's in stow for the future?
Brokers and bankers anticipate that the number of reverse mortgages will skyrocket in the coming years. There are 77 million baby boomers retiring or set to retire in the U.S., and they will likely spur massive growth in the home loan market, in which loan initiatives had been falling in the last few years.
"There are lots of mortgage lenders who see declining volumes and may view (reverse mortgages) as an opportunity to increase revenues," said David Stevens, president of the Mortgage Bankers Association and a former commissioner of the Federal Housing Administration.