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Due to sharp increases in the
price of natural gas, home heating costs have skyrocketed. According to recent news
reports, the average monthly bill for homeowners is
more than $100.
There's a special concern for seniors, many of whom are on a
fixed income. One possible solution for seniors is to take advantage
of the equity in their home to provide an additional source of money.
Reverse mortgages are gaining popularity, and quickly.
According to the Department of Housing and Urban Development (HUD), the
number of reverse mortgages has more than quadrupled since the early 1990s
when the product was first introduced.
There are three primary reasons for this growth:
• A better understanding of the product
• An aging population
• An effort by various organizations to promote the benefits and
flexibility of the product
A reverse mortgage is a loan that enables senior homeowners
to convert part of the equity in their home into tax-free income without
having to sell their home, give up title, or take on a new monthly mortgage
payment. And there are no income or medical requirements to qualify.
One of the biggest selling points of the reverse mortgage is
its flexibility. The product allows senior homeowners to choose how
they want to receive their mortgage funds:
1) as a lump sum
2) as monthly income - for up to life as long as the
borrower lives in the home
3) as a line of credit or
4) as a combination of monthly income and line of
credit
These funds can then be used at the homeowner's discretion -
to pay for home repairs, medical costs, in-home care, heating bills,
education for a grandchild, or simply as supplemental retirement income.
The amount you can get through a reverse mortgage depends on
your age when you apply, the type of reverse mortgage you want, the value of
your home and current interest rates. Generally, the older you are and
the more valuable your home, the more your reverse mortgage can be.
The costs of taking out a reverse mortgage can be financed
and are similar to those of regular mortgages and include origination and
appraisal fees. The money from a reverse mortgage is tax-free.
The funds will not affect Social Security or Medicare, but can affect your
eligibility for certain kinds of government assistance such as Supplemental
Social Income, Old Age Pension, and Medicaid, if not set up properly.
Before applying for a reverse mortgage, you must meet with a
reverse mortgage counselor. You can get a list of counselors near you
from local mortgage companies or from the U.S. Department of Housing and
Urban Development.
No monthly payments are made on a reverse mortgage during its
term. It simply becomes repayable when the home is sold or vacated for
other reasons. In addition, the repayment amount cannot exceed the
value of the home. Any excess proceeds belong to the homeowner or the
estate. Homeowners who use reverse mortgages never owe more than the
value of their homes or the amount borrowed under the terms of the loan,
whichever is less.
Here's how a reverse mortgage might work: A 68-year-old
homeowner, with a free and clear property value of $225,000, could select
monthly income of $787 for as long as he/she lives in the home, or monthly
income of $1,082 for a 16-year term. Or, the homeowner could receive
an open credit line or lump sum payment of more than $132,000.
A home is one of the most powerful assets people have during
their lifetimes. A reverse mortgage is a reward of longtime
homeownership and a great opportunity for eligible seniors to ease their
financial burden, but they are not right for everyone.
Before making a decision about a
reverse mortgage, do your research and make sure you get all your questions
answered. A few resources worth checking are the AARP's reverse
mortgage information line at 800-209-8085 or online at
www.AARP.org/revmort
or
the National Center for Home Equity Conversion at
www.reverse.org.
Be sure to call John Noonan, Reverse Mortgage Specialist in Grand Rapids,
toll free, at 877-308-1489, if you would like to talk directly to an expert.
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