REVERSE MORTGAGES

 

Are you 63 or older, own a home and in need of emergency cash or extra monthly income? Then a reverse mortgage may be for you.



Also known as a "home equity conversion mortgage" or a "reverse equity loan," A reverse mortgage lets you supplement your retirement income by tapping into the cash value of your home. You can borrow an amount equal to about half of your home equity and use the money however you want -- no risk of defaulting. The bank is repaid when your house is sold after you die or move out. If the house is sold for less than the loan amount, the lender takes the loss.

 

What's the bad news? Interest rates and fees associated with reverse mortgages are much higher than those for regular mortgages (see chart). In fact, persons younger than 65 may not be able to borrow enough money under a reverse mortgage to justify its higher cost. A second mortgage or other financing plan may be cheaper.

 

Single homeowners in their 70s tend to get the most for their money with a reverse mortgage. The size of the loan is sufficient, and these seniors usually have ample time to spend it.

 

 

Example of Reverse Mortgage Fees and Payment Schedule   Age of Borrower 72 Property Value $300,000 Maximum Loan $152,362 Interest Rate 8.02% Closing Costs $7,047 Monthly Service Fee $30