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Reverse Mortgage-Keep Your Home and Make Money

Wednesday, November 5, 2008 posted by Tommi Crow

 High energy costs, the stock market crash and the dismal housing market have converged to make 2008 one of the scariest economies in over 70 years.  Many people fear that they can not meet their monthly expenses this winter.  Further, many feel trapped, living in houses that they can not afford  and can not sell.   One answer for those over the age of 62, may be a Reverse Mortgage.

 

What is a Reverse Mortgage?

A reverse mortgage is a program for Seniors age 62 and older.  The program enables homeowner’s to receive part of their home equity as tax-free income without having to sell their home, give up title or pay a mortgage payment.

How Does a Reverse Mortgage Work?

The homeowner pledges the home as collateral for the loan, but does not make any mortgage payments on the amount borrowed.  The borrower receives their equity as a lump sum, a monthly payment, a line of credit, or a combination of the three.   The amount owed to the lender can never exceed the value of the home

No money needs to be repaid to the lender until the borrower no longer occupies the property as a principal residence.   If the borrower dies, sells the home or moves, the lender will sell the property to pay back the loan.   If the amount owed is less than the sales price, the excess money is returned to you or your estate.

What Can I Use the Money For?

The money you receive can be used for anything.  You can use the funds to supplement your retirement income, repair or remodel your home, pay for health care, living expenses, pay off debt, buy a new car, take a vacation or prevent a foreclosure.

Why Should You Avoid a Reverse Mortgage?

If you intend to leave your home within 2-3 years, there are less expensive options you may want to consider.  Because of the upfront costs associated with a reverse mortgage (approximately 2-3 percent), home equity loans or a tax deferral program may save you money on borrowing costs.

If you want to leave your home to your heirs, you should also consider other options.   In most cases, the home will have to be sold in order to pay back the reverse mortgage.  A better option would be to sell the home to your heir’s now, and rent it back from them for your lifetime use.

How Did Reverse Mortgage Get Its Name?  

It is called a reverse mortgage because the typical flow of money is reversed.  Instead of the borrower making monthly payments to the lender, as is customary, the lender makes payments to you.

How Do I Find Out More About Reverse Mortgages?

The non-profit site Reverse Mortgage has all the facts and information you need to make a decision.  Topics on the site include the rates charged by different lenders, info about the effects of reverse mortgages on social security, medicare and medicaid benefits, special requirements and a whole lot more.

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