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Are you house rich and cash poor? Do you want to have extra money for
daily and housing expenses? In the past, you essentially had two options.
First, you could sell your home and move. Second, you could borrow against
your home and then face monthly loan repayments. Today there is a third
possibility - a reverse mortgage.
A reverse mortgage is a type of home equity loan that allows you to
convert some of the equity in your home into cash while you still own your
home. It works much like a traditional mortgage, only in reverse. Rather
than making a payment to your lender each month, the lender pays you. This
money can provide you with the financial security needed to enjoy your
retirement years.
All reverse mortgages turn your home equity into three things: loan
advances paid to you; loan costs paid to the lender and others; and
leftover equity, if any, paid to you or your heirs at the end of the loan.
Money can be paid to you all at once, as a regular monthly advance, at
times and in amounts that you select, or some combination of these
methods.
The money you receive is paid back, plus interest, when you die, sell your
home or permanently move out of the home. You can never owe more than your
home's value at the time the loan is repaid. Because you continue to own
your home, you remain responsible for property taxes, insurance and
repairs.
All owners of the home must apply for the reverse mortgage and sign the
loan papers. You must be at least 62 years of age and occupy the home as
your principal residence for most reverse mortgages. There are no income
or medical requirements. Typically, single-family homes are eligible for
all reverse mortgages, and some programs accept other properties such as
condominiums.
The amount of money you can obtain generally depends on your age, your
home's value and location, the cost of the loan and the specific reverse
mortgage plan or program you select. Most homeowners get the largest cash
advances from the federally-insured Home Equity Conversion Mortgage, or
HECM. Another major product is the Home Keeper reverse mortgage developed
by Fannie Mae.
Other reverse mortgages are offered by private companies. These loans can
be used for any purpose, but are usually more expensive than public
reverse mortgages. To find out who offers reverse mortgages in Colorado,
go to the Web site of the National Reverse Mortgage Lenders Association.
Loan costs can vary considerably depending on the reverse mortgage
selected, as they may not include the same types of loan costs. The costs
associated with getting a reverse mortgage include the origination fee, an
appraisal fee and other charges similar to those for regular mortgages.
The Total Annual Loan Cost, or TALC, of a reverse mortgage also depends
upon how long you live in your home and what happens to its value during
that time. The federal Truth-in-Lending law requires lenders to disclose
the TALC for reverse mortgages. For a TALC tutorial, visit the Web site.
There are AARP model specifications for analyzing and comparing reverse
mortgages. For details, visit the Web site and order a complimentary copy of their publication, "Home Made Money: A Consumer's
Guide to Reverse Mortgages" (#D15601) by calling 1-800-424-3410.
Here are the steps to take in deciding on a reverse mortgage:
- Awareness-Learn the basics about reverse mortgages.
- Action-Seek additional information by contacting a lender.
- Counseling-Obtain mandatory counseling from an approved counseling
agency. Contact the Housing Counseling Clearinghouse at 1-800-569-4287 to
identify approved counselors within your area.
- Application/Disclosure-Fill out the application and select payment. The
lender discloses the estimated total cost of the loan, the lender collects
money for a home appraisal and you provide the lender with required
information.
- Processing-Lender orders appraisal, title work and lien payoffs, etc.
Papers are signed.
Because your home is such a valuable asset, you will likely want to
consult with your family, attorney and financial advisor before applying
for a reverse mortgage. Knowing your rights and responsibilities as a
borrower helps to minimize your financial risks and avoid any threat of
foreclosure or loss of your home. You should also check on possible tax
consequences, effects on eligibility for assistance under federal and
state programs and impacts on your estate and heirs.
For more information on reverse mortgages, contact your local Colorado
State University Extension office. Additional information on
Healthy Aging can be found at the Colorado State University Extension Web site - select Info Online, Consumer
and Family, then Healthy Aging.
For more information, contact your local
Colorado State University Extension office.
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