Reverse Mortgages

During recent years, the topic of reverse mortgages has received extensive coverage in the news. In order to determine whether a reverse mortgage is right for you, it is important to learn as much as you can about the nature of reverse mortgages and to make a full consideration of the advantages and disadvantages of reverse mortgages.

What Is a Reverse Mortgage?

Ordinarily, we think of a mortgage as a type of loan which will help a home buyer purchase a new home. A reverse mortgage is entirely different. With a reverse mortgage, the homeowner obtains a loan based on the equity in the home. Instead of the homeowner making payments to the lender, the lender makes payments to the home owner. The payments may be in many different forms in order to suit the home owner's needs. A reverse mortgage allows a homeowner to convert the equity in the home into cash, while the homeowner retains ownership of the home. Furthermore, a homeowner can use the funds obtained as a result of a reverse mortgage for any purpose, including: monthly living expenses, home repairs, and taxes.

You might consider a reverse mortgage if you live on a fixed income, you wish to stay in your home, and you require additional funds for your monthly living expenses. It is extremely important, however, for you to consider all of your options, because other alternatives may better suit your needs.

How Do I Qualify?

In order to qualify for a reverse mortgage, you must be age 62 or older. You must own your home or the mortgage on your home must be nearly paid in full. The amount you qualify to borrow is based on the value of your home, the amount of your equity in the home, and your age.

Factors to Consider in Determining Whether to Obtain a Reverse Mortgage

• It is important to note that there are three types of reverse mortgages: FHA-insured, lender-insured, and uninsured. Each type of reverse mortgage differs from the other. It is important that you consider the nature of each type of reverse mortgage in relation to your needs.
  
• A reverse mortgage may affect your eligibility for certain public benefits, such as Supplemental Security Income (SSI) and Medicaid, even though the proceeds of a reverse mortgage are not taxable.
  
• A reverse mortgage, like any other mortgage, has a cost attributable to the transaction itself. The cost may vary widely, depending on the type of reverse mortgage you choose. Consider the expense to you and whether another option may be more cost effective.
  
• A reverse mortgage is a significant financial transaction. It can be confusing.

It is advisable that you consult with others in order to determine whether a reverse mortgage is right for you. You may wish to talk the matter over with your family, friends, a financial advisor, or a reverse mortgage counselor approved by the Department of Housing and Urban Development (HUD).

Further Information

As with any major financial transaction, it is important that you obtain as much information as possible. Ask as many questions as you feel necessary. Don't sign any document if you don't fully understand what the document says. Additional information on reverse mortgages is available by contacting:

U.S. Department of Housing and Urban Development

451 Seventh Street, SW

Washington, DC 20410

1-888-466-3487 or 1-800-569-4287 (to obtain the name of a HUD-approved reverse mortgage counselor)

www.hud.gov

Lastly, to report suspected fraud or to make a complaint, you can contact the Federal Trade Commission (FTC). The FTC is a government agency that functions to prevent fraud, deceptive schemes, and unfair practices. The contact information for the FTC is as follows:

Federal Trade Commission

Consumer Response Center

600 Pennsylvania Avenue, NW

Washington, DC 20580

1-877-FTC-HELP (1-877-382-4357)

www.ftc.gov

Copyright 2008 LexisNexis, a division of Reed Elsevier Inc.