What is a Reverse Mortgage?
Patricia Adkins A reverse mortgage is a loan against your home that you do not have to pay back for as long as you live in your home. There are three types of reverse mortgages: 1) single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; 2) federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and 3) proprietary reverse mortgages, which are private loans that are backed by the companies that develop them. Single-purpose reverse mortgages usually have very low costs, but they are not available everywhere, and they only can be used for one purpose which is specified by the government or nonprofit lender. Generally, you can qualify for these loans only if your income is low or moderate. The HECM gives you options in how the loan is paid to you. You can select fixed monthly cash advances for a specific period of time, or for as long as you live in your home; or you can opt for a line of credit, which allows you to draw on the loan proceeds. You can also get a combination of monthly payments and a line of credit. HECMs usually provide larger loan advances at a lower cost compared with proprietary loans. But owners of higher-valued homes may get larger loan advances from a proprietary reverse mortgage. Benefits of the reverse mortgage: * Advances are not taxable * Generally do not affect Social Security or Medicare benefits * You retain the title to your home * You do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. As you consider a reverse mortgage, consider that: * Lenders normally charge origination fees and other closing costs for a reverse mortgage. * The amount you owe on a reverse mortgage will grow over time. Interest is calculated on the outstanding balance and added to the amount you owe each month. * Reverse mortgages can have fixed or variable rates. * Reverse mortgages can tie up all or some of the equity in your home, leaving fewer assets for you and your heirs. * A "nonrecourse" clause, found in most reverse mortgages, prevents your estate from owing more than the value of your home when the loan is repaid. * Because you retain title to your home, you are still responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. * Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off. A trained mortgage broker or consultant can help you review several scenarios and options to determine if the reverse mortgage is right for you. Visit www.FreeConsumerService.com for more articles and resources on mortgages and real estate. About the Author
ABOUT THE AUTHOR: Patricia Adkins is a specialist on the subject of mortgages and real estate. Her web site, http://www.FreeConsumerService.com, provides a wealth of informative articles and resources on everything you'll ever need to know about getting the best deal when you buy a home or refinance your existing mortgage. Patricia Adkins may be contacted at www.FreeConsumerService.com. Click here to view more articles by Patricia Adkins. Reprinted with Permission from IdeaMarketers.com
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