Reverse Mortgage

If you are "house rich, but cash poor", a reverse mortgage loan may allow you to pay off your financial debt while allowing to stay in your home. A reverse mortgage pays you, while the lender holds the equity in your home. Payments can be made to you in a lump sum or monthly payments. You generally do not have to pay back the money until you sell your home. The money can usually be used for anything you wish, is tax free and there are no minimum income requirements.

In order to qualify for a reverse mortage you must be 62 years of age and have your home mortgage paid off or nearly paid off. If you get a Home Equity Conversion Mortgage you are required to take free mortgage counseling from a government approved housing agency. Factors that determine how much you qualify for include the equity you have in your home, your age, the current interest rate and the value of your home.

Types of Reverse Mortgages:

• Single purpose reverse mortgages, usually offered by state or local government agencies for a specific reason
• HECM (Home Equity Conversion Mortgage), administered by HUD (Department of Housing and Urban Development)
• Proprietary reverse mortgages (mortgage lenders, banks)

Seniors find reverse mortgages attractive because the loan advances are not taxable and generally do not affect Social Security or Medicare benefits. Reverse mortgages generally allow homeowners to retain title to their homes until they sell their home, move, die, or reach the end of a pre arranged loan term. A move is considered permanent when the homeowner has not lived in the home for 12 consecutive months, so if you don't sell your home immediately repayment isn't due for 12 months.

Reverse mortgages can be more costly than traditional loans because interest is added to the principal loan balance each month. The lenders also usually charge origination fees and closing costs and some charge servicing fees. Be aware that with some reverse mortgages, the lender may take a share of equity appreciation. This can cause problems later if your home appreciates unexpectedly during the life of the loan. Always read the contract carefully and/or have it reviewed by your accountant or lawyer.