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Reverse Option: Not Just a Super Bowl Play

February 1, 2007 By:
Andrew Lasner, JE Feature
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Fueled by rising home values, larger sales forces and increased consumer acceptance, the number of federally insured reverse mortgages made in the United States in 2006 grew by 77 percent, according to the National Reverse Mortgage Lenders Association.

"More seniors are recognizing that traditional retirements tools, such as IRAs, pensions and 401(k)s, are not providing sufficient income to help fund everyday living expenses and health care," said Peter Bell, president of NRMLA. "Through proper education, more retirees are recognizing that the home they have lived in for so many years can now take care of them by using a reverse mortgage to access the equity accumulated over 20, 30, 40 years, to help them living more comfortably."

For homeowners ages 62 and older, reverse mortgages may provide a safe way to tap into home equity to pay for what you want or need without giving up your home. A reverse mortgage is a loan that enables senior homeowners to convert part of their home equity into potentially tax-free income without having to sell their home, give up title to it or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home.

In a "regular" mortgage, you make monthly payments to the lender. But in a "reverse" mortgage, you receive money from the lender and generally don't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home or no longer live there as your principal residence.

Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes, and still meet their financial obligations.

The following are a few of the advantages:

· Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership.

· No monthly mortgage payments. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.

· Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax-free (check with your tax adviser).

· Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.

What are some of the disadvantages?

· Reverse mortgage options can be confusing and numerous. Get counseling.

· They are more costly to set up than other types of loans.

· Although the proceeds are generally tax-free, a reverse mortgage may impact upon your eligibility for certain "need-based" public benefits, such as Medicaid, Supplemental Social and Security Income.

There are three types of plans available today: FHA-insured, lender-insured and uninsured. Each type differs. A reverse mortgage counselor can help you decide which type is right for you and which lender offers the program that best meets your needs.

Four important things you should do before getting a reverse mortgage:

· Determine if you really need it, or if another type of loan would be better for you.

· See a HUD approved reverse mortgage counselor free of charge to help you decide.

· Shop around and compare!

· Consider whether a reverse mortgage might make you ineligible for any public benefits you now receive or may be eligible to receive in the future.

Andrew Lasner is a Realtor and a senior real estate specialist at Keller Williams Preferred in Newtown. He can be reached at 215-860-0800 or e-mailed at: Andrew1@ comcast.net.

 

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