Living

More Money on Hand

With the cost of gas, food, shelter, health care and other essentials rising, many seniors on a fixed income are struggling to survive. Stories of seniors foregoing medication in favor of food and shelter are not uncommon. Fortunately, for seniors who own a home, there may be an alternative. They may be able to obtain a reverse mortgage and convert a portion of their home's equity into cash.

With a traditional mortgage, homeowners make monthly payments to the lender. With a reverse mortgage, the opposite occurs. Homeowners age 62 and older receive money from rather than pay the lender. As long as they remain in their home, they do not have to pay back the lender. Should they move or die, they or their heirs must repay the amount they have borrowed, plus interest.

There are three types of reverse mortgages: single-purpose, federally insured and proprietary. Single-purpose reverse mortgages are offered by state and local government agencies and nonprofit organizations. They are the least costly of the three but may only be used for the one purpose the lender agrees to, such as making home repairs or improvements. Federally insured reverse mortgages are offered by the U.S. Department of Housing and Urban Development. Proprietary reverse mortgages are offered by private companies. Both of these types of reverse mortgages feature high upfront costs but give homeowners the freedom to use the money as they see fit.

With a reverse mortgage, homeowners may never owe more than what their home is worth. Loan amounts vary according to the type of reverse mortgage provided, the age of the homeowners, the interest rate, the appraisal value of the home and other factors. Interest accrues on the loan, of course, and unlike that of traditional mortgages, it cannot be deducted from the homeowners' taxes until the loan is paid off. Payment usually occurs in one of three ways: in set monthly payments, through a line of credit or through a combination of the two. Throughout the term of the loan, homeowners continue to be responsible for all expenses associated with their home, including property taxes, insurance, maintenance, and so forth.

As with traditional mortgages, homeowners should do their homework and shop around for the right reverse mortgage. They should become familiar with the pros and cons of reverse mortgages, study the types available and speak with a qualified financial consultant to determine if a reverse mortgage is the best option for them. In cases where homeowners want to leave their heirs substantial assets, a reverse mortgage may not be a good idea.

Reverse mortgages can be beneficial for seniors who qualify and need to supplement their income. There will come a day, however, when the loan must be repaid, and therefore, seniors should make certain that obtaining a reverse mortgage is the right solution to their situation.

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