Seniors and Reverse Mortgages

By: Jody Smith

Many seniors are interested in learning more about reverse mortgages. A reverse mortgage is a home loan that lets you take some of the home equity you've built up, and withdraw it as cash.

This loan doesn't need to be repaid during the time that you live in your house. This type of loan can also be used to help purchase a home under certain circumstances.

To qualify for a reverse mortgage, you must be at least 62 years old, either owning your own home or with a low enough balance on your mortgage that it can be taken care of via the reverse loan. Living in your home is a requirement.

Single-family dwellings, some manufactured homes or condominiums approved by the Housing and Urban Development Department, or a 2-4 unit home where you occupy one of the units, may qualify for a reverse mortgage.

A reverse mortgage is called that because it’s terms are very different from the usual home equity loan or line of credit. Instead of you making payments on the principal and the interest of the loan, you get paid.

There's no credit check, and income tax doesn't need to be paid on the loan. You will still have to pay insurance premiums, real estate taxes, and utilities.

You may still have something to pass on to your children and grandchildren, depending on how much, if any, money is left after all debts and finance charges are paid. Anything over and above that would go to your estate. Your heirs cannot be left with debt from this process.

Ron Lieber of the New York Times reported in a March 11, 2011 article that AARP took the Housing and Urban Development Department to court because of a problem that arose with some reverse mortgages.

In 2008, HUD issued a clarification concerning situations where the homeowner and borrower dies, and the heir -- for instance the spouse -- wants to remain in the house. The survivor would be required to pay off the balance owed.

Doing your homework on a reverse mortgage is vital. It can mean the difference between having a roof over your head or dealing with a foreclosure after the death of a spouse.

Lieber recommended that if you are applying for a reverse mortgage, don't just arrange to see one counselor which HUD requires anyone to do. He advocated seeing two counselors who work for different groups.

Liz Weston, in a Feb. 5, 2012 article on LATimes.com, recommended the reverse mortgage in some situations, but also issued some cautions.

Be aware that a reverse mortgage can be expensive, with high fees. A newer version of the federal Home Equity Conversion Mortgage is worth considering with its lower fees upfront. Some lenders may be willing to decrease or eliminate their fees.

She concurs with Lieber, that you must be sure to do your research, get several evaluations from people connected to a number of different organizations. Take your time to look for the best deal and make sure you really understand what you're getting into.

Sources:

Frequently Asked Questions about HUD's Reverse Mortgages

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten

A Red Flag on Reverse Mortgages

http://www.nytimes.com/2011/03/12/your-money/12money.html

Reverse mortgage may be best option for elderly homeowner

http://articles.latimes.com/2012/feb/05/business/la-fi-montalk-20120205

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