I am interested in getting a reverse mortgage
on my home. I am a 70-year-old woman and barely have enough money
to live on. My only asset is my house, but I still have a mortgage
loan balance of $35,000. Can you give me any advice? Thanks. --
Reverse mortgages are growing in popularity because they allow people
over 62 a way to tap into the equity in their home without having
to make payments on a loan.
You don't have to own your home free-and-clear to
have a reverse mortgage on the property. In fact, you can use a
reverse mortgage to pay off your first mortgage. But how much you
can borrow using a reverse mortgage will depend on the amount of
equity you have in your home, the loan's interest rate and your
age. In general, older people can borrow more because the lender
expects the loan to be outstanding for a shorter period, so less
interest will accrue on the loan.
You can get a reverse mortgage and then borrow money
against it as needed, get a lump sum, or arrange to receive scheduled
payments over time. The loan balance increases with each payment
that you receive and interest expense accrues on the outstanding
loan balance, so it will make sense for most people to receive payments
over time vs. as a lump sum.
The payments aren't considered to be taxable income
but may affect your ability to qualify for government assistance.
It would be worth your while to consult with a CPA concerning the
tax deductibility of the interest expense when the loan becomes
due, confirm that the payments received aren't considered taxable
income and to ask about how the payments change your ability to
qualify for government assistance.
The payments that you receive plus the interest expense
on those payments become due when your home is sold, but the amount
owed on the reverse mortgage can't exceed the value of the home.
You will pay closing costs to take out a reverse mortgage, but they
can be financed through the reverse mortgage.
The reverse mortgage becomes due if you permanently
move out of the home, if you sell the home or upon your death. You
or your heirs can choose to repay the loan vs. selling the home
when the loan becomes due. If the house is sold, any money that
remains after paying off the reverse mortgage, other mortgages or
other secured claims is yours.
of Housing and Urban Development's (HUD) reverse mortgage program
is offered through the Federal Housing Administration (FHA). Even
though its loans are limited in size to the FHA limits for conventional
mortgages, it has some consumer-friendly features like insurance
and the ability to restructure payments if your needs change.
Just like a regular mortgage loan, closing costs and
interest rates matter. So do the insurance premiums that the FHA
charges. Don't look at this as free money because it's not. You're
borrowing against the equity in your home. You're just not making
any payments on the loan until either the house is sold or the loan
Compare the FHA program to at least one private lender
program. If you need help deciding on a loan, hire someone to advise
you, preferably either a real estate attorney or a CPA or both.
Michael Larson's Bankrate
feature will provide additional information on reverse mortgages
as will the National
Reverse Mortgage Lenders Association's Web site.