By Jim Miller Jul 17, 2008 found a observernews.net
Homebody Bob
Dear Bob,
Over the years reverse mortgages have been considered loans of last resorts,
only for financially desperate seniors. Not anymore! The reverse mortgage
industry is booming -- helping retirees from all walks of life use their
homes to help fund their retirement.
The Reverse Mortgages Basics
A
reverse mortgage is a unique loan that lets older homeowners convert part of the
equity in their home into tax-free income that doesn’t have to be paid back as
long as they live there. But who’s eligible? How much can be borrowed? What
does it cost? And is this right for you? Here are the key points on how a
reverse mortgage works and where you can find help:
• Eligibility: To be eligible you must be at least 62 years old, own your own
home and currently be living there. There is no income qualification. Even if
you have an existing mortgage, you’re still eligible, but you must be able
to get enough from the reverse mortgage to pay it off.
• Ownership: With a reverse mortgage, you, not the bank, own the house, so you
are still responsible for property taxes, insurance and repairs. And, how you
choose to spend the money from the loan is up to you.
• Types of loans: There are two basic types of reverse mortgages, the FHA
insured, Home Equity Conversion Mortgage (HECM) which accounts for about 90
percent of all reverse mortgages on the market. (HECM’s limit how much of the
home’s value you can tap – currently ranging from $200,160 to $362,790.) And
conventional reverse mortgages, also known as jumbo loans, which are better suited
for seniors with higher valued homes – over $400,000 – because they offer
larger loan amounts.
• Loan costs: The main drawback of reverse mortgages is the hefty up-front
fees -- a 2 percent lender origination fee, 2 percent mortgage insurance, along
with appraisal fee, closing costs and other miscellaneous expenses. All told,
the cost of getting a HECM can run around 5 percent of the value of your home.
Conventional reverse mortgages are generally more expensive. (Note: Most
up-front fees can be added to the loan balance, so you’ll have no
out-of-pocket cost at closing.)
• Loan amounts: The amount you get through a reverse mortgage depends on
your age, your home’s value, where you live and the current interest rates.
Generally, the older you are, the more your house is worth, and the lower the
interest rates are, the more you can borrow. To calculate how much you may be
able to borrow with a HECM visit www.rmaarp.com. You can calculate conventional
reverse mortgages on the websites of the financial institution you’re
considering.
• Payment options: You can receive the money from a reverse mortgage in a
lump sum payment, a line of credit, regular monthly checks or a combination of
these.
• Loan repayment: A reverse mortgage does not have to be repaid until you, or
the last surviving borrower, permanently moves out of the home or dies. Then you
or your heirs will have to pay off the loan (which includes the money you
actually borrowed plus accrued interest and fees) either with the proceeds
from selling the place, or if they want to keep it, with money from another
source. But, you or your heirs will never owe more than the value of the house.
• Counseling: Before applying for a reverse mortgage, you are required to
first meet with an independent counselor who will spell out the pros and cons,
as well as the alternatives (it’s free). To find one in your area call the
AARP Reverse Mortgage Education Program (800-209-8085), the National Foundation
for Credit Counseling (866-698-6322), or Money Management International
(877-908-2227).
• Tax-free: The money you get from a reverse mortgage is tax-free and won’t
affect your Social Security or Medicare benefits, but it may affect eligibility
for certain kinds of government assistance, such as SSI and Medicaid. Be sure
you check.
• Reverse lenders: Reverse mortgages are offered by both banks and mortgage
lenders. To help you choose one, talk to your reverse mortgage counselor or
visit www.reversemortgage.org
.
Savvy Tip: To learn more about reverse mortgages, visit www.aarp.org/revmort
, or call 800-209-8085 and order their free booklet “Home Made Money.”
Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or
visit www.savvysenior.org
. Jim Miller is a contributor to the NBC Today show and author of “The Savvy
Senior” book.
read also I reviewed a few Mortgage equity
E-books to helps those interested in finding some alternative strategies
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