Are you yearning for a more simple life, free of financial worries? It may be time to downsize and allow yourself to enjoy your golden years. Downsizing can help get your finances in order and end a cycle of scrambling to keep up with debt and other bills.

Can a Reverse Mortgage Help?

Reverse loans have been used by some senior citizens to downsize to less expensive homes. Proceeds from a home equity conversion mortgage (HECM) can be used to purchase another home if it becomes your primary residence. A housing counselor can explain reverse mortgage guidelines and review your finances to help determine if borrowing money makes sense.

Do You Want to Stop Working?

Cutting back on expenses can give you some breathing room when it comes to earning money. While some people enjoy working at least part-time during their golden years, you may not want to be tied to a job just to pay for basic living expenses. Downsizing can allow you to live more comfortably on less income. If you choose to apply for a reverse home mortgage, the money you receive could allow you to stop working and enjoy a comfortable retirement.

Talk with Retirement Planner

You are required to talk with a HUD-approved reverse mortgage counselor before applying for a HECM. You should also consider consulting a retirement planner who can help you make other decisions about your finances. A comprehensive retirement plan could allow you to maximize your income and live the lifestyle you want.

If you think a reverse loan can help your situation, begin shopping for quotes here. Just keep in mind that there may be better options for funding your retirement and living a simpler life than borrowing money using the equity in your home.

A reverse loan isn’t always the best choice for homeowners. While borrowing money can allow seniors to supplement their income, they should consider other options before resorting to tapping home equity. Here is what you need to know about using a reverse home mortgage to help with household expenses.

Borrowing With a Reverse Loan Is Not Free

Various fees are involved when getting a reverse mortgage. Generally, borrowing with a reverse loan is more expensive than getting a traditional mortgage. Among the costs associated with reverse mortgages is the origination fee. If you borrow with a Home Equity Conversion Mortgage (HECM), the most popular reverse mortgage in the U.S., the origination fee is 2% of the initial $200,000 and 1% of the rest of amount that is borrowed. The fee is capped at $6,000. Some reverse mortgage lenders have waived some fees recently so you may find a deal when comparing loans.

Mortgage Insurance

Reverse mortgages require both upfront and monthly mortgage insurance premiums. The HECM upfront premium is 2% of the home value or the area FHA loan limit, whichever is smaller. The annual premium equals 0.5% of the loan balance and is paid monthly. Also expect to pay other closing costs like an appraisal fee.

Reverse Mortgage Age

Another reason you may want to skip applying for a reverse mortgage is that you may be too young to get much benefit from it. Waiting until you are older could give you a larger payout. In addition, if you don’t have enough equity in your home, a reverse loan may not help much. If your home’s value has taken a huge hit in recent years, it could make sense to wait until the housing market recovers more.

When you borrow with a reverse mortgage you can use the money for any purpose. Many seniors use reverse loan proceeds to help pay for medical costs. Here’s what you need to know about paying for health care with a reverse home mortgage.

What Is a Reverse Mortgage?

A reverse loan allows you to convert home equity into cash. The money is paid as a lump sum, in installments, or as a line of credit. The money does not have to be repaid until you move out of your home or die. Borrowing money does not mean that a reverse mortgage lender owns your home. The title remains in your name.

What About Social Security?

Unless you have carefully saved for retirement, you may be planning to rely on Social Security. But there is a high probability that Social Security checks won’t cover all your living expenses, especially if you end up with a medical condition that requires expensive care. Just paying for medications can drain your wallet, even if you don’t factor in the cost of doctors visits or hospital stays.

Keeping Your Independence

For some people having enough money to pay for their needs during retirement years is the key to remaining independent. Not only can reverse loan proceeds help pay for medical treatment, but the money also can be used to make modifications to your home or pay for household help, transportation, or other services you might need.

Get Expert Advice

A reverse mortgage counselor can review your expenses and help determine whether a reverse loan might fit into your financial goals. There are pros and cons of reverse mortgages so find someone who can discuss the good and the bad of borrowing money. A reverse loan counselor also should discuss alternatives to borrowing money.

You may have heard a lot of things about reverse mortgages. Reverse loans have their pros and cons, and there seems to be no end to the discussion about whether or not seniors should borrow money this way. Only you can decide if borrowing with a reverse mortgage can help you fund a comfortable retirement. Consider some of the following points when researching your options.

Retirement Planning Is Important

Whether you are 52 or 62, it’s important to have a plan in place for your golden years. Ideally, you would have begun planning for retirement early in your working life. But if you are like many Americans you may have little to no retirement savings. A recent Gallup poll found that only 29% of Americans plan to retire before age 65 and 34% plan to work past the age of 65. Many of the people who plan to work longer say it’s because of finances.

Not Enough Savings

So what should you do if you don’t have enough money saved up for retirement? It’s never too late to start putting something away in savings. But if you don’t think your retirement account will go very far, you could consider a reverse mortgage.

What Is a Reverse Mortgage?

A reverse loan could allow you to borrow against your home equity to supplement your income. The money can be used for any purpose. The older you are and the higher your home’s value, the more money you qualify to borrow. Of course if you don’t have significant home equity, you won’t qualify for a reverse loan.

Reverse loans can be an important part of a retirement plan. But these mortgages are not always the right solution to financial problems. A qualified housing counselor can discuss reverse mortgage guidelines with you and help determine if borrowing money is a smart move.

It’s important to choose a reverse mortgage loan agent who is willing to listen to your concerns and explain how these loans work. While there are knowledgeable reverse mortgage salespeople out there, be on guard for some red flags that may indicate you are dealing with an amateur or even a scam artist.

High Pressure Sales Tactics

You should never be pressured or coerced to sign up for a reverse home loan. Some reverse loan salespeople may use scare tactics to get you to borrow money, or make you feel like time is running out on signing up for a deal. Don’t feel pressured to apply for a reverse loan just because a salesperson says there is a deadline.

Borrowing against home equity is a huge decision that requires a lot of consideration. Discuss your concerns with a qualified reverse mortgage counselor who has passed testing approved by the Department of Housing and Urban Development (HUD). If a loan salesperson refuses to answer your questions or can’t explain how these mortgages work, look for one more experience.

Pushing Other Financial Products

Some reverse mortgage salespeople try to get you sign up for annuities or other financial products when you apply for a reverse loan. Think about it: first they want to charge you to release your home equity with a reverse loan, then they want to charge you to tie it all up again with an annuity. It makes no sense–except to the guy who gets commissions from both transactions.

Compare Reverse Loans

Avoid signing up with the first reverse mortgage company you talk to. Take time to gather reverse mortgage quotes from several lenders so you can compare all the fees and other details. If you feel uncomfortable with a reverse loan salesperson, trust your gut instinct and look for a different company.

Get Recommendations

Ask other people you know who have borrowed with reverse mortgages to recommend a company. You can also search for reputable lenders on this Web site.

Are you interested in rankings of the best place to retire? There are several lists out there that rank places to live based on a variety of factors that include climate, cultural activities, recreational opportunities, and affordability. Among the publications that come out with rankings each year are Money, U.S. News, AARP, and Smart Money.

What Makes it the Best?

If you are thinking of relocating, make sure you understand all the criteria that go into compiling a “best places” list. Of course you must visit a location to determine if you can feel comfortable living there. And think about how you would pay for a move. One source of funding could be a Home Equity Conversion Mortgage (HECM).

HECM for New Home Purchase

The Department of Housing and Urban Development allows reverse mortgage proceeds to be used to purchase a new home. You cannot use the money to buy a vacation home. The house you buy must be used as your principal residence.

Pros and Cons of Reverse Mortgages

One advantage to using the HECM to relocate is that you can move to the area you want to live in without taking on monthly mortgage payments. Another plus is that you could use a reverse loan to move away from an area with a high cost of living. If you have a fixed income, it can be very difficult to keep up with bills in more expensive housing markets such as New Jersey or California.

A disadvantage to getting a reverse mortgage loan is that you need a decent amount of home equity to borrow money. But with a reverse loan you won’t be able to borrow 100% of your home equity even if you own a home free and clear. The amount you can borrow depends your age, a property appraisal, and current interest rates. Also, borrowing with a reverse loan may decrease the amount of inheritance you can leave to heirs.

Foreclosure filings fell 9% in April from the previous month, according to RealtyTrac. The 333,837 foreclosure filings that included default notices, scheduled auctions, and bank repossessions was down 2% from April 2009.

Sunbelt States

Nevada still has the highest rate of foreclosure of all states, with more than five times the national average. It was followed by Arizona, Florida, California, and Utah. Some of those states have high numbers of senior citizens who are continuing to struggle with falling home values. Some of these people may be considering reverse mortgages as a way to supplement their income. But giving up hard-earned home equity isn’t easy, so here are some things to consider before applying for a reverse loan no matter where you live.

• Are you facing foreclosure? A reverse mortgage counselor can help you determine whether or not a reverse loan can help. If you live in a state where home values have plunged over the past few years, you may not have enough equity to borrow with a reverse mortgage.
• Do you really need the money? There is a difference between being unable to pay your bills and wanting extra funds for vacations, entertainment, and hobbies. Reverse mortgages are used when seniors have no better options for raising cash.
• Will you feel cheated later if you no longer have much equity in your home? If you are like many homeowners it probably took years to build up home equity or pay off a mortgage. Many people dream of owning a home free and clear, so if this has been your goal, a reverse home mortgage may not fit into your plans.

Compare Reverse Loans

The RealtyTrac data suggest that foreclosure rates are plateauing. If you are not facing an imminent threat of losing your home to foreclosure, take time to gather information about reverse loans before deciding whether to apply for one. Get quotes from several reverse mortgage lenders to compare deals.

More metropolitan areas in the U.S. saw home prices rise in the first quarter of 2010 from a year earlier, according to the National Association of Realtors (NAR). The NAR’s latest housing survey found that median home prices rose in 91 out of 152 metropolitan areas; 29 of those areas had double digit gains, 58 had price drops, and three were unchanged. This could be good news if you are hoping to tap home equity to borrow a reverse loan.

National Home Prices Show Little Change

The national median price of existing single-family homes was $166,100, compared with $167,300 in the year-earlier quarter. About 36% of home sales were distressed homes.

Buyer confidence is back, and home buyers have long-term views. “The typical buyer plans to stay in the home for 10 years, so we’ve put the flipping mentality behind us and most people see housing for what it is: shelter that provides social benefits and is also a good long-term investment,” said Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

Reverse Mortgages and Home Values

There are pros and cons for reverse mortgage loans, including the fact that housing values have dropped over the past few years. The amount a homeowner can get by borrowing with a reverse home mortgage is based in part on the value of the property. Falling home values can seriously depress the amount of equity a person has available for a reverse mortgage.

But if home prices are beginning to show gains in your area, it could make sense to have an appraisal done to get an idea of what your home is currently worth. A local real estate agent can also do a comparative analysis of recent home sales in your area. Get as much information about the local housing market before beginning reverse mortgage counseling and applying for a loan.

Converting some of your home equity to cash may sound like a good idea, but applying for a reverse loan is not always the right solution. To learn more about reverse mortgage guidelines it’s important to find a knowledgeable housing counselor.

Help Is Available

You must receive counseling about reverse loans before you can apply for one. It’s important to understand the difference between free informational seminars and reverse mortgage counselors. Any public seminar that discusses pros and cons of reverse mortgage loans can be helpful, but does not qualify as counseling.

Your reverse mortgage counseling session must be conducted by a housing counselor approved by the Department of Housing and Urban Development (HUD). The counseling requirement can only be fulfilled if you work with a counselor who has passed a HUD-approved exam and meets other requirements. Get as much information about a counselor’s qualifications and experience as you can before signing up for help.

What Can Reverse Loan Counselors Offer?

Reverse loan counseling can be done in person or by phone. Sessions by phone may be spread out over more than one call. A counselor can discuss requirements for getting a reverse home mortgage. He or she also should have answers to frequently asked questions, such as information about fees, age requirements, payment options, etc.

Compare Reverse Loan Quotes

When you are ready to shop for a reverse mortgage, get quotes from several mortgage lenders. A reverse mortgage counselor should be available to review those quotes with you and explain similarities and differences. Begin shopping for reverse mortgage quotes here to find the right loan package for your situation.

What happens when a homeowner dies and leaves a property with a reverse mortgage? The reverse mortgage heirs can keep the property–if they pay off the loan. It’s important that any senior who decides to take out a reverse loan let their heirs know about it. This can help reverse mortgage heirs avoid problems after their loved one passes.

What Is a Reverse Home Mortgage?

A reverse loan allows people ages 62 and up to borrow money against the equity in their homes. The money can be used for any purpose, including buying a new home, paying medical bills, or making home repairs. Many seniors apply for reverse mortgages because they need to supplement a fixed income.

If you are considering a reverse loan, talk with your heirs to let them know what’s happening. You can even ask them to attend a reverse mortgage counseling session with you to learn more about reverse mortgage guidelines. It’s not a good idea to let them be surprised about having to deal with a reverse mortgage after you die.

Keeping a Home

If your heirs want to keep the home after you are gone, the reverse mortgage must be paid off. Money to pay off a reverse mortgage can come from your estate, such as from an insurance payment. But if there is no money available, reverse mortgage heirs would have to come up with the money out of their own pockets.

If they don’t want the home, they can choose to sell it to repay the reverse mortgage and pocket any profit. They can also do nothing (if, for example, the balance of the loan exceeds the property’s value) and let the reverse mortgage lender foreclose on the property. The heirs will owe nothing no matter how high the reverse mortgage balance is.

Consider all your options before resorting to borrowing with a reverse mortgage. There may be other ways to get the cash you need to supplement your income without borrowing against home equity.

Reverse mortgages appeal to many seniors because they don’t have to repay the money borrowed until they move or die. But there are some circumstances that can result in you paying off a reverse mortgage early.

No Monthly Mortgage Payments

A reverse loan doesn’t require you to make payments on your outstanding balance every month. This allows seniors to keep more money in their wallet for other purposes, such as medical bills, long-term care insurance, home repairs, etc. Even if you receive reverse mortgage proceeds through a line of credit you won’t be required to pay back what’s owed until you leave the home.

Keep Up Insurance Payments

Not paying for homeowners insurance, however, can result in reverse mortgage lenders requiring you to pay back a loan early. Make sure that you maintain an affordable homeowners insurance policy so you can keep up with the payments. Shop around for a new insurance policy if you’ve had the same one for years. You may be able to save money by using the same insurance company for homeowners and auto insurance, or any other types of policies you carry.

Reverse Loan and Property Taxes

Reverse mortgage lenders also require that property tax payments be up to date. Property taxes are usually paid quarterly, so make sure you put aside enough money for when the due date approaches. As a senior citizen you may qualify for some kind of break on property taxes depending upon where you live. Check with your local government to find out what type of assistance you may be eligible to receive.

If the only reason for taking out a reverse mortgage is that you need help paying property taxes or maintaining your home, look into single purpose reverse mortgages. These low-cost reverse mortgages are reserved for low0income seniors and administered by local governments and charitable organizations.

To get more information about reverse mortgages and terms for repaying them, talk with a housing counselor. You can search for a reverse mortgage counselor approved by the Department of Housing and Urban Development at the agency’s Web site.

When you borrow a reverse mortgage you have several options for receiving the money. A reverse mortgage counselor can help determine the best way to receive funds.

Lump Sum Payment

You may want all the money borrowed with a reverse loan upfront. Getting all of it at once may be a good option if you are experienced with handling large sums of money. You can use the loan for any purpose.You can even sell your home and use your Home Equity Conversion Mortgage (HECM) to purchase another house as long as it is going to be your principal residence.

Reverse Mortgage Installments

If you tend to have financial problems and don’t keep careful track of your spending, a lump sum payment might not be such a great idea. You can choose to receive the money with regular installment payments. Those installments could be set up so that you receive money for as long as you live in your home. This is called tenure payments.

Regular payments can also be set up to last for a specific term. During that period of time you could receive regular monthly payments. Once that term ends you wouldn’t be liable for repaying the money until you move or die.

Get a Line of Credit

While you may need money now to supplement your income, it may not be necessary to take all the cash you are eligible to receive. A line of credit can allow you to access the money when you need it. There may be a maximum amount you can withdraw at any time, but you can choose when you get paid.

To get an idea of how much money you might qualify to borrow with a reverse home mortgage, begin searching for loan quotes here.