A few weeks back, I wrote about a National Consumer Law Center study reporting that some of the same people who sold subprime loans now sell reverse mortgages.
Even so, there are people 62 or older who might benefit from reverse mortgages, if they can find reliable providers.
"I basically know how they work, that they are not for everyone and should probably be used as a last resort for income," says reader Lois Girard. "Many people have lost substantial investments needed for retirement and may need this product."
I received a dozen similar requests for details. Here's what I can tell you, based on information from the Federal Trade Commission and the Department of Housing and Urban Development, which insures about 95 percent of these loans. (More facts can be found at www.ftc.gov or 1-877-382-4357 and at www.hud.gov or 1-800-225-5342.)
There are three kinds of reverse mortgages:
Single-purpose loans, offered by some state and local government agencies and nonprofit organizations for one-time major expenses like property taxes or roof repairs. Information: www.eldercare.gov, 1-800-677-1116.
Home-equity conversion mortgages (HECMs) insured by HUD.
Private loans backed by the companies that develop them.
HECMs and private or proprietary reverse mortgages cost more than traditional mortgages. HECMs have no income or medical requirements and can be used for any purpose.
How much you can borrow depends on your age, the type of reverse mortgage, the appraised value of your home, and current interest rates. The older you are, the more equity you have, and the less you owe, the more you can borrow.
HECMs require counseling with a HUD-approved agency that costs $125, typically paid from loan proceeds. Find a list of agencies at the HUD Web site or by calling 1-800-569-4287.
There are pluses to reverse mortgages:
How you get the money is your choice - fixed monthly payment, lump sum, credit line, or a combination. You can change the payment option at any time for $20.
If you receive more in payments than your home is worth, you will never owe more than the value of the home.
Loan advances are not taxable and generally don't affect Social Security or Medicare benefits. You retain title to your home. You don't have to make monthly repayments.
The loan must be repaid when the last surviving borrower dies, sells the home, or it is no longer the primary residence. HECM programs allow borrowers to live in nursing homes or other medical facilities for up to 12 months before a loan becomes due.
After the home is sold and the loan and fees are paid to the lender, any remaining equity belongs to you or your heirs.
And there are minuses, too:
Lenders may charge servicing fees during the loan's term.
Debt increases as interest is charged to outstanding balance.
Most loans have variable interest rates tied to short-term indexes.
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