Vol 7 No. 31 - April 25, 2007

Convert equity into cash with reverse mortgage

By Louise Bolger
sun staff writer

I really hate to admit this, but recently a lot of conversations with family and friends have revolved around topics that just a few years ago didn�t even cross my mind.

Who�s getting a knee or shoulder replacement, how exactly does Medicare work and how old do you have to be to qualify for the senior discount at Bealls and the Oakmont Theatre? In addition to the above catalog of topics, people have also been asking me about the option of applying for a reverse mortgage.

A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his home into cash. These loans are becoming popular to assist homeowners in supplementing their retirement income in order to remain in their homes and still cover their monthly expenses.

To qualify you must be at least 62 years of age and live in your home. The property can be a single family dwelling, a two-to-four-unit property that you own and occupy, a townhouse, a condominium unit and some manufactured homes. The proceeds from a reverse mortgage will not affect Social Security or Medicare benefits and are not taxable.

There are a variety of ways in which reverse mortgage proceeds can be disbursed: Equal monthly payments, as long as the property continues to be occupied as a principal residence, equal monthly payments for a fixed period of months selected, a line of credit to be used by the borrower at his choosing until the line of credit is exhausted, combination of line of credit and monthly payments for as long as the borrower remains in the home, and combination of line of credit with monthly payments for a fixed period of time.

A reverse mortgage is different from a home equity loan or conventional lines of credit in that it pays you. The amount you can borrow depends on your age, the current interest rate and the appraised value of your home. The loan does not need to be repaid as long as one of the borrowers continues to live in the house and keeps the taxes and insurance current. When the home is sold or the homeowner can no longer use it as a primary residence, the estate will repay the cash that was advanced from the reverse mortgage, plus interest and other fees to the lender. Any remaining equity is paid to the homeowner or his heirs.

If you are considering a reverse mortgage, shop around just like you would if you were financing your home for the first time. Interest rates and fees vary from lender to lender. In addition, borrowers are required by federal law to meet with an independent, government-approved housing counselor before completing the loan. Their job is to explain to you the financial implications of a reverse mortgage and any alternatives which could be more beneficial.

Because this is a decision affecting your most valuable asset, consulting with family members, an attorney and your financial advisor should be considered. A reverse mortgage has risks attached to it, especially if your home is your major and only asset, so it is essential that you understand every aspect of the program.

If you want to make your senior years a little more comfortable and you don�t care about spending your children�s inheritance, then a reverse mortgage might fit into your financial future. Complimentary information about reverse mortgages is available by calling AARP at 1-800-209-8085 or U.S. Department of Housing & Urban Development (HUD) at 1-888-466-3487. Well, hopefully I took care of the reverse mortgage questions, but if you want information on Medicare or senior discounts you�ll have to ask someone else � a least for a few more years.

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