| For many seniors, home equity is roughly 30-40 | | | | recently, though, they've become popular with |
| percent of their net worth. They are house poor | | | | individuals who see them as a better alternative |
| often times and don't have the available funds to | | | | to home equity lines. Some use the proceeds to |
| make repairs. If you and your spouse are both at | | | | supplement monthly income, buy a car, fund |
| least 62 years of age and have significant equity | | | | travel and second homes. Evaluate with the help |
| in your home, a reverse mortgage can turn that | | | | of a financial adviser if reverse mortgage funds |
| equity into tax-free cash without forcing you to | | | | can be used to restructure estate taxes. |
| move or make a monthly payment. YOU DON'T | | | | You will have to consult with a financial planner |
| NEED A JOB AND YOU DON'T NEED CREDIT! | | | | before you're granted this loan - that's one of the |
| Age and equity are the only qualifying factors. | | | | requirements. This step can be completed within |
| A reverse mortgage can be a worthwhile financial | | | | the first few days of the process. The basic loan |
| tool if used correctly. At the same time, you | | | | closing now takes place in about 30-40 days from |
| could make some serious mistakes with your | | | | the date of application. Generally the only |
| financial future. For example, you don't want to | | | | out-of-pocket cost is an appraisal fee ranging |
| take your equity and run down to the casino. | | | | from $300- $500. There is required counseling to |
| A reverse mortgage gets its name because of | | | | make sure that you are making the right decision |
| the way it works. Instead of the borrower | | | | for you. |
| making payments to the lender, the lender | | | | Here are other things to consider-some of these |
| releases equity to the borrower in a number of | | | | are risks: |
| forms: | | | | Cost: Reverse mortgages are generally more |
| · A lump sum cash payment; | | | | expensive than traditional mortgages in terms of |
| · A monthly cash payment; | | | | origination fees, closing costs and other charges. |
| · A line of credit (which tends to be the | | | | The basic FHA-backed HECM loan finances these |
| most popular option);o Some combination of the | | | | fees into the initial loan balance, and they can run |
| above. | | | | between $12,000 and $18,000. The loans are |
| When the owner dies or moves away, the house | | | | based on anticipated home value appreciation of |
| can be sold, the loan paid off and any leftover | | | | four percent a year, so if the housing market is |
| equity value can go to the living owner or the | | | | healthy, those costs are generally recovered in a |
| designated heirs. Heirs don't have to sell the | | | | short period of time. But if the housing market |
| house. They can either pay off the reverse | | | | sours, it will definitely take longer to recoup those |
| mortgage with their own funds or refinance the | | | | fees. |
| outstanding loan balance within six months with | | | | You'll need to make sure you're not endangering |
| the option of two 90-day extensions that must | | | | your federal retirement benefits: The basic FHA |
| be applied for. Unfortunately, heirs often | | | | HECM is designed as tax-free income to the |
| discourage people from getting a reverse | | | | senior receiving their Social Security income. |
| mortgage because they are afraid of losing their | | | | However, if your total liquid assets exceed |
| inheritance. | | | | allowable limits under federal guidelines, you might |
| There are three basic types of reverse | | | | endanger your benefits. This is another critical |
| mortgages: | | | | reason to work with a financial planner on this |
| · Single-purpose reverse mortgages, | | | | decision. |
| which are offered by some state and local | | | | Rates: Reverse mortgages have rates that are |
| government agencies and nonprofit organizations; | | | | typically higher than those charged on conventional |
| · Home Equity Conversion Mortgages | | | | mortgages. Interest is charged on the outstanding |
| (HECMs) are federally insured reversed mortgages | | | | balance and added to the amount you owe each |
| backed by the U. S. Department of Housing and | | | | month. Again, check the total annual loan cost. |
| Urban Development (HUD);o Proprietary reverse | | | | Your mortgage can be called due and payable: |
| mortgages are private loans that cover home | | | | The homeowner or estate always retains title to |
| values usually over $600,000. | | | | the home, but if you fail to pay your property |
| Some loans are conventional loans, some are | | | | taxes, adequately maintain your home, pay your |
| proprietary loans held by certain lenders and some | | | | insurance premiums, or change your primary |
| are insured by FHA. | | | | residence, the lender can declare the mortgage |
| The size of a reverse mortgage is determined by | | | | due or reduce the amount of monthly cash |
| the borrower's age, the interest rate and the | | | | advances to pay those overdue amounts. |
| home's value. The older a borrower, the more | | | | Did you know that you can actually use a reverse |
| they can borrow, but the amounts are capped by | | | | mortage to buy a house? How do you do it? Let's |
| the maximum FHA loan limit for each city and | | | | take an example: maybe you sell you are a senior |
| county. The amounts vary from $200,160 in rural | | | | that sells their home and nets 300K. Next they |
| areas to $362,790 in many major metropolitan | | | | can go buy a new home for about 500K, by |
| areas. In Alaska, Guam, Hawaii and the U.S. Virgin | | | | putting down 300K, and financing the other 200K |
| Islands, the FHA mortgage limits can be adjusted | | | | with a reverse mortgage. Maybe a senior would |
| up to 150 percent of the ceiling based on the | | | | like to move from their older house of many |
| area. If the FHA modernization Act is passed, it is | | | | years to a new condo or loft. This would be a |
| possible that the FHA loan limit will be raised. This | | | | great way to do it. |
| would be great, since it seems that FHA is the | | | | Talk to your kids as their ignorance of this |
| mortgage loan that generally gives more equity to | | | | product may cause them to give you bad advice. |
| the senior. | | | | If your house is your major asset, getting |
| Reverse mortgages have traditionally been | | | | involved in a reverse mortgage may not leave |
| chosen by older Americans who can't cover | | | | much to the next generation - if it appreciates, |
| everyday living expenses or who otherwise need | | | | there may be some difference that the kids can |
| cash for such things as long-term care premiums, | | | | have. That's why that in addition to discussing a |
| home health care services, home improvements | | | | reverse mortgage with a financial adviser, seniors |
| or to pay off their current mortgage or credit | | | | need to talk with their family. |
| cards greater than their income can support. More | | | | |