Home Equity
Reverse Mortgage – Putting Your Equity to Work
By Barry Scoles
Oct 28, 2005, 18:31

If you're like many seniors, your home is your largest asset, and although you are concerned about the thought of borrowing against it, your house may be the only way to increase your income. Rising real-estate prices have caused many seniors' homes to significantly increase in value. But unless they are willing to sell, it may be an inaccessible gain during a time in their lives when extra income and liquid assets would be very helpful.

Many seniors don't qualify for home-equity loans based on income, and in any case, those home-equity loans require a monthly repayment, so they don't solve the cash-flow problems.

There is a way to put this equity to work – Reverse Mortgages.

Reverse mortgages have been around for years, but it wasn't until the early '90s that they began earning respectability after the Federal Housing Administration started regulating and insuring the program.

Reverse mortgages are starting to catch on. In the last three years the number of new reverse mortgages, nationwide, has tripled.

How a reverse mortgage works

Reverse mortgages allow you to withdraw money from your home equity, tax-free, with no requirement that it be repaid until you die or move out of your home. You can use the money for any purpose. And, as long as the you live in the home, pay the property taxes and homeowners insurance, there no way you can be forced out of your home.

The loan might be in the form of a line of credit that can increase over time and be drawn as needed, a lump sum payout, a fixed monthly check for as long as you live in the home, or a mix of options. Typically there are no out of pocket expenses, as closing costs and other fees can be wrapped into the loan. The reverse mortgage also pays off any existing mortgage, ending that monthly bite on income.

The amount you can receive through a reverse mortgage depends on your age, location of the home, interest rates and value of your home. The actual amount is easily calculated and will not vary from one lender to another.

How Do I Know If a Reverse Mortgage Is Right For Me?

A Reverse Mortgage might be worth considering if:

   ▪ You prefer to stay in your home, either because you don't want to leave or because other housing alternatives are unappealing
   ▪ You want to enhance your lifestyle and enjoy your golden years.
   ▪ You want a cushion for major expenses such as medical bills, property taxes, and home repairs.
   ▪ You have a need for additional tax-free income to meet your day-to-day expenses
   ▪ You want the peace-of-mind that comes from knowing you have a financial “safety net” to take care of unexpected expenses.
   ▪ You would like to purchase a more “senior friendly home” but you do not want the a mortgage payment that would come with a traditional mortgage.

What Are Some of the Advantages of a Reverse Mortgage?

    ▪ A reverse mortgage can help you maintain your financial independence and an adequate standard of living.
    ▪ A reverse mortgage allows you to remain in your home and retain ownership.
    ▪ The money you receive from a reverse mortgage is tax-free.
    ▪ A reverse mortgage can help you maintain your financial independence without exhausting your other liquid assets.
    ▪ It allows you to remain in your home and keep title to your property.
    ▪ The money you receive is tax-free. It is not usually considered income.
    ▪ You make no payments (principal or interest) until the loan ends or the house is sold.
    ▪ Your income is not a consideration in obtaining the loan since there are no payments until the loan ends.
    ▪ You cannot owe more than the value of the house at the end of the loan.

About half of the 28 million senior homeowners who are 62 and older are eligible for reverse mortgages. Reverse mortgages provide a safe secure solution for seniors to live out their life in the comfort of their own home with the dignity and peace of mind they deserve.