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Thinking About Reverse Mortgage

by Cheryl Ellis, Staff Writer

(Page 1 of 2)

Individuals who live in their home, and have no or a very low mortgage balance, may find that a reverse mortgage will supplement income when needed.  While the borrower must be 62 years of age or older, caregivers who retain durable power of attorney can investigate this type of loan to help their loved ones.

The uses for the funds are up to the borrower.  Payments can be received lump sum or through a variety of other methods such as equal monthly payments; any extras can be retained in an interest bearing account.  Money market mutual funds, which are considered the “least volatile,” will allow checks to be written when necessary.   Taxes on the home can be pulled from this type of saving from a reverse mortgage.  Because it bears interest, there may even be a little left over to keep the account afloat for the following year, or for other expenses.

A financial advisor or a CPA should be consulted if the amount selected is in excess of what is immediately needed.  Consult with one before signing a reverse mortgage note, and know where the mortgage company will be sending the funds.  AARP cautions individuals who are approached by “lenders” who offer to “invest” their money.

Caregivers needing to make improvements on a loved one’s home for safety reasons can utilize the funds from a reverse mortgage to cover the bill.  The current appraised value of the home and any limits on lending for the geographic area determine the amount available for lending. 

There are costs involved with reverse mortgages, but you cannot owe more than your home’s value.  Going through a HUD approved counseling agency will help in finding if the costs and process will be a positive move.  They can be reached toll free at 1-800-569-4287. 

The common misconception is that a reverse mortgage will pay you money for your home and then “take it away” when the borrower dies.  Many folks worry that their home’s current value will be given to them, and when it appreciates, the lender will take that money, too.  This is not correct.

However, there are charges and interest involved with reverse mortgages, and they can consume the additional funds should the home be sold.  The area the home is in may undergo only a modest appreciation by the time it is sold, and simply meet the amount to be paid back.  So while you will not owe more than your home is worth, any loan requires interest to be paid.  AARP has a reverse mortgage education program and can be reached at 1-800-209-8085.

Evaluating your needs as well as your loved one’s is important when considering a reverse mortgage option.  Many caregivers must take time from work or alter their work availability to care for loved ones.  Rather than pull money from your own income, consider utilizing this alternative source of income.  If you have to make up the difference so that medications or other costs can be met, this will alleviate financial drainage.  It’s important to remember that should you stop covering for these expenses that you budget appropriately when you regain your income.

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