Financial Health
Reverse Mortgages: Choose Wisely to Make Part of Financially Healthy Retirement
By
Mar 3, 2010 - 5:46:44 PM

(HealthNewsDigest.com) - Older homeowners who own their homes outright or who have built up significant equity in their homes might have minimal housing costs. Yet they still might experience unhealthy stress about their overall cost of living. These concerns are exacerbated for seniors who could lose income in the event of the death of an aging spouse – especially if that spouse was the primary wage earner in the family.

A financial product known as a reverse mortgage can allow these homeowners to benefit from their investment in their home. Reverse mortgage products (or HECMs, standing for "home equity conversion products") were designed to help elderly homeowners who have substantial home equity and wish to stay in their homes. However, potential borrowers must understand how a reverse mortgage works and beware of the risks.

Understand how the loan and income work. A HECM converts home equity into payments to the homeowner. A reverse mortgage is available regardless of the owner's current income or credit rating. The income typically does not affect Social Security or other benefits. Instead of you making monthly payments, the bank pays you – either as a fixed amount each month or as a lump sum.

Know who qualifies. Reverse mortgages are available to borrowers age 62 or older. Borrowers must have significant equity built up in the home to qualify.

Check your equity. Equity in a property is the difference between a property's market value and the amount of claims held against it (such as mortgage loans or liens). If a home is completely paid off, the equity is the current market value of the home. If you have a mortgage, your equity equals your home's value minus the balance of the mortgage. You must pay off any existing mortgages with the proceeds from the reverse mortgage before you begin receiving income.

Find out borrowing limits. The Federal Housing Authority regulates how much homeowners can borrow with a reverse mortgage. The amount varies with the home's value and the borrower's age. Get a ballpark figure with a calculator such as AARP's: http://rmc.ibisreverse.com//rmc_pages/rmc_aarp/aarp_index.aspx.

Know the costs. Reverse mortgages are relatively expensive. Fees sometimes are up to 7 percent of the home's value. These fees are usually taken from the home's equity, reducing the net amount.

Realize that a HECM is a debt. A reverse mortgage is a debt. The money you receive is a loan from the lender. Reverse mortgage borrowers can live in the home until their death, as long as they pay property taxes. The loan comes due when you sell the house, move out of the house or pass away. Thus, your home will not be left free and clear to your heirs. Heirs must repay the loan if they wish to keep the home.

Educate yourself. Seek out trustworthy sources for information on reverse mortgages. Two good resources include the AARP, http://www.aarp.org/money/personal/reverse_mortgages/, and the Federal Trade Commission, http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm. For personalized counseling on your options, call the U.S. Department of Housing and Urban Development (HUD) at 888-466-3487 to be referred to an approved counselor. These counselors also can help you understand if you qualify for other benefits that might improve your financial situation. Most counselors charge about $125 for this service, but the fees can be paid from home equity. If you cannot afford the fee, you cannot be turned away.

A reverse mortgage can help seniors benefit from the home they worked hard to attain. But because it is a major financial transaction, smart borrowers will educate themselves so they can make the right decision for their future and that of their heirs.

Subscribe to our FREE Ezine and be eligible for Health News, discounted products/services and coupons related to your Health. We publish 24/7.
HealthNewsDigest.com
We videotape Press Conferences, produce Satellite MediaTour's, B-rolls, PSA's, - all with distribution: HealthyTelevisionProductionstvmike13@healthnewsdigest.com


© Copyright by HealthNewsDigest.com