Reverse Mortgage Provides Cash Now
Reverse mortgages allow homeowners aged 62 and up to tap into their home equity. Benefits of these loans include homeowners not having to repay the money until they leave their home and being able to receive the funds in a lump sum or in installments. Also, the money can be used for any purpose.

Dugan’s concerns about reverse mortgages include:

—The fact that some lenders aggressively market investment, insurance, or annuities to seniors who apply for reverse home loans
—Misleading marketing claims by some lenders
—The lack of escrows for tax and insurance payments; not paying these fees can result in foreclosure.

Are Reverse Mortgages Too Complex?
Since Dugan aired his concerns, lawmakers, lenders, and others have weighed in with their concerns. Some say reverse mortgages are too complex and could be costly for seniors. “You may borrow $100,000 and 10 years later owe $200,000,” Sen. Claire McCaskill of the U.S. Senate Special Committee on Aging said at a field hearing this week. Others say reverse mortgage fraud is a growing concern, including inflated home appraisals.

Reverse Mortgages Can Help Seniors
But Jeff Lewis, chairman of Generation Mortage, of Atlanta, told the Chicago Tribune, “The whole purpose of our program is to make loans to seniors who don’t fit into the traditional market. Pointing that out as a harbinger of doom is ludicrous. Without [reverse mortgages], if people couldn’t get to the money in their house, they’d just have to sell them.

There certainly are pros and cons to reverse mortgages. Take the time to compare reverse mortgage quotes from several lenders to determine if this loan product is right for you.

Fewer Bills, Less Stress
Reverse mortgage loans allow people to cash in the equity in their home, leaving them with more income for their expenses and no monthly housing payments. Some seniors on a fixed income are forced to take jobs to pay their bills, whether they want to work or not. Having income from a reverse mortgage means homeowners can have a financial cushion, so they may be in a better position to devote some of their spare time to community service.

About 61 million people volunteered in their communities in 2007, according to the Corporation for National and Community Service. Also, 31.2% of baby boomers volunteered 52 hours a year between 2005 and 2007, Volunteering in America reported.

Paul Alexander, of Hampstead, N.H., told Reverse Review: “If we had to work to pay our mortgage, that’s a different story. We wouldn’t be able to make those contributions. It is a great social plus. It [reverse mortgage] is truly one of the best things that has happened to this country in a long time.”

Reverse Mortgage Candidates
While reverse mortgages can be a useful tool for some people, they won’t work for everyone. Reverse mortgages may make more sense for people who:
—Own their home outright or owe very little on a mortgage
—Are 70 and up. Even though you can qualify at 62, it may make sense to wait to qualify for more money.
—Have high medical bills or other larges expenses
—Can’t qualify to refinance their home.

Get quotes from our trusted network of reverse mortgage lenders, so you can compare loan packages.

Your Personal Bailout
AARP found that 25.5 million people over 50 have a mortgage, and many of them are on fixed incomes, making it difficult for them to catch up on missed payments. Even if you’re still making mortgage payments you could qualify for a reverse mortgage loan if your home equity is significant. If you already own ar home free and clear but have seen your retirement nest egg dwindle because of the financial crisis, a reverse mortgage could be the thing that allows you to continue living comfortably.

Why Use a Reverse Mortgage?
Not everyone has the same financial situation. But many people who take out reverse mortgage loans do so because they’ve encountered huge medical bills or other unexpected expenses. Other people use the cash from their reverse mortgage to pay for long-term care insurance. It’s not a good idea to take out a reverse home loan to pay for your kid’s college education.

Is a Reverse Mortgage Right for You?
So how do you know whether a reverse mortgage is a smart move in today’s economy? Ask yourself a few questions:
—Are you behind on mortgage payments but have a lot of equity in your home?
—Do you own your home free and clear but are struggling with medical or other large bills?
—Are you struggling with tax payments even though you own your home outright?
—Are you at risk of filing for bankruptcy or foreclosure?

Getting a reverse home loan is one possible solution to your financial woes. But it’s important to consider all the unique details of your situation before jumping into a reverse mortgage. Taking out a reverse home loan could cut into the amount of inheritance you wish to pass on to your kids. Also, over time the amount of equity you have in your home will fall. And last, even if you get a reverse mortgage, you’ll still need to budget your money wisely.

Big Chunk of Money
A lump-sum payout would allow you to get all of your money right away. This could be good if you are responsible with large sums of money. It could also be useful if you plan to downsize to a smaller home and don’t want monthly mortgage payments. However, if you aren’t very good at handling large amounts of money, you may want to choose a different payment option.

Line of Credit
Having a line of credit would allow you to withdraw money from your reverse mortgage loan whenever you needed it. Withdrawals are on your schedule in whatever amount needed until the line of credit has been used up. A line of credit may work well for you if you only need a small amount of cash to supplement your income right now but anticipate needing more money down the road.

Fixed Monthly Payments
You could receive the money as equal monthly payments. It would be paid for a specific amount of time or for as long as at least one borrower continues to live in the house as the principal residence.

Reverse mortgage loans also allow you to combine the previous options to receive payments. For instance, you could get a lump sum payment at the beginning of your reverse mortgage, then withdraw additional money through a line of credit.

Think about your personal money habits, the amount of income you currently have available, and your plans for using the money from a reverse mortgage to decide which payment plan is right. A reverse mortgage counselor should be able to help you set some goals and decide upon the best way to get your money.

When you tap into the equity in your house with a reverse mortgage loan, you won’t have to repay it until you leave you home. But if you don’t keep up with your homeowner’s insurance payments, you could be required to repay the loan early. That’s because your home will serve as collateral for a reverse mortgage loan. Mortgage lenders want to know that if they invest in your home by offering you a reverse mortgage it will be covered by insurance in case of a fire or accident.

Make sure the policy has replacement cost coverage. If your home were damaged or destroyed in a disaster, replacement coverage would pay for repairing or rebuilding it with similar materials.

In many cases, the amount of insurance you need will be less than the appraised value of your property. That’s because the appraised value includes the land, and only the structures on your property need to be insured with replacement cost coverage.

If your home is in a flood zone you also will be required to get a flood insurance policy when you get a reverse mortgage loan. Even if you own your home outright and don’t currently have a flood insurance policy you’ll be required to get on in a flood zone. The National Flood Insurance Program offers coverage for building property up to $250,000 and personal property up to $100,000.

Converting Home Equity to Cash
A reverse mortgage allows you to cash in on the equity built up in your home over the years. The older you are, the more money you’ll be able to get. You’ll receive the money as a lump sum, regular payments, line of credit, or combination of the above methods. The loan won’t have to be repaid until you leave your home or die.

As you use up the loan, your home equity will decrease while the amount of debt you have will increase. Some people may be uncomfortable with accumulating debt—especially if they’re used to living debt-free—but it’s important to remember that you won’t be responsible for any monthly payments on your home with a reverse mortgage. Also, there’s always the chance that the value of your home will increase, which could help you retain more equity over the life of the loan.

Mortgage Refinancing
Refinancing a mortgage loan has the opposite result. At the beginning of the loan you’ll have a large balance. You may have some equity at the beginning of the loan period if you make a sizable down payment or already have some equity in your home at the time of refinancing. But as you pay it off you’ll increase your home equity and decrease your mortgage debt.

Here are some other ways refinancing differs from getting a reverse home loan:
—Reverse mortgages don’t require income or credit checks, but refinancing typically does.
—With a reverse mortgage you can’t be forced to move unless you stop making tax and insurance payments. So you won’t have to worry about foreclosure.
—Reverse mortgages can only be used on your primary residence.

Refinancing a mortgage means you’ll have to come up with the cash to make regular monthly payments. If you are at least 62 and retired, don’t have a steady income, or just can’t keep up with your monthly payments, a reverse mortgage may make more sense than refinancing. But if you abhor debt and have enough income to pay your living expenses, refinancing could be a good way to lower your mortgage rate.

Q. I’m only 62. Is a reverse mortgage loan a good idea at my age?
A. Reverse mortgages are available to people who are 62 and up. But generally, the older you are, the more money a mortgage lender will be willing to lend you. So if you don’t really need the money right now, it may make sense to hold off on getting a reverse mortgage for several more years. Also, the younger you are when you receive a reverse mortgage, the more likely you’ll outlive the loan and need to find another source of income.

Q. Will I have to move if I outlive the mortgage loan?
A. No, you will not have to move. You also will not have to repay the loan as long as you stay current on your taxes and insurance.

Q. Will I be able to leave my home to my children?
A. Yes, you can leave your home to your children and they will not be liable for repaying your mortgage loan out of their own pockets. Your heirs can apply for a conventional mortgage to pay off the reverse mortgage. If there is still equity in the home, your kids could also choose to sell the home to pay off your loan.

Q. What kind of fees will I pay to get a reverse mortgage?
A. Reverse mortgages are generally known for their high fees. Among the costs you’ll probably pay are an origination fee to cover the lender’s operating expenses, an appraisal fee, and other closing costs. FHA’s reverse mortgage program also requires a mortgage insurance premium (MIP) to guarantee that if your loan servicer goes out of business, the government will make sure you still have access to your loan funds. MIP also guarantees that you’ll never owe more than the value of your home when the reverse mortgage has to be repaid.

Use this reverse mortgage calculator to determine how much you might receive when applying for a loan.

The volume of reverse mortgages rose 24% in March from the previous month, according the federal government. That’s partly because so many homeowners are house rich and cash poor.

Due to the struggling housing market, many people who’ve built up a lot of equity in their homes are unable to sell. That means that people who may have already retired or may have lost their job are unable to move to a less expensive home or may be facing foreclosure. Homeowners who live in expensive housing markets also may be struggling with paying high taxes.

A reverse mortgage loan:
—Could give you a lump sum or line of credit to help with your household expenses
—Could allow you to keep the title to your home
—Would not require repayment until you move or die
—Could help you avoid relying on Medicaid, possibly resulting in a lien on your home, according to the New York Times
—Can be used for any purpose.

The amount of loan you receive would be based upon your age, the value of your home, and current interest rates. Based on 2009 figures, a 70-year-old with a $200,000 home in Westchester County, N.Y., would be able to receive a maximum loan of $110,723, according to Elder Law Answers. If you receive a line of credit you won’t pay interest on the unused portion of the loan.

Reverse mortgages do come with higher fees than conventional mortgages. In many cases, you’ll end up paying twice the closing costs on a reverse mortgage. The loan payments could also affect the amount of government benefits you receive. However, the payments aren’t usually treated as income if they are spent during the same month in which you receive them.

A reverse mortgage is like a home-equity loan that doesn’t have to be repaid until the borrower leaves their home. The homeowner can receive a lump sum payout or get regular payments over a period of time. People who aren’t sure they’ll stay in their home for the long term may want to elect to receive regular payments to preserve some of the equity in their home longer.

Some of the reasons a homeowner may decide to tap into their equity and get a reverse mortgage are to pay for long-term care insurance, make home improvements, or because they have seen their retirement account significantly decline due to the drops in the stock market. But even some people who go through with a reverse mortgage loan may find that at some point they need to repay it sooner than they thought. Among the reasons a reverse mortgage loan must be repaid are:

—If you die your heirs will likely have to sell your home to repay the debt
—You move to a new home that is your primary residence
—You have not lived in your home for 12 consecutive months, including an extended stay in a nursing home
—You fail to pay your property taxes or insurance
—You don’t keep up with necessary repairs on your house

A reverse mortgage lender can help you decide whether it makes sense to get this type of loan whether you plan to be in your home until you die or for a shorter period of time. The Federal Housing Administration also has more information to help you learn about reverse mortgages.

1. Do as much research as possible before contacting a mortgage lender. AARP has excellent resources to help you learn about reverse mortgages. Use a reverse mortgage calculator to get an idea of what type of loan you might qualify for. If you have friends or family who have used reverse mortgages, ask them about their experiences and whether or not they can recommend a reputable lender.

2. Find a mortgage lender through the National Reverse Mortgage Lenders Association (NRMLA), which has listings of lenders in every state. You should always check out a reverse mortgage lender’s reputation to make sure they don’t have a long list of complaints. You can contact your state attorney general’s office or the Better Business Bureau to check out lenders.

3. You must get counseling before applying for a reverse mortgage from a HUD-approved counselor or national counseling agency such as AARP or the National Foundation for Credit Counseling. You can receive counseling over the phone or in person.

4. Apply for a mortgage loan and provide any relevant documents. Your lender should give you an estimate of the total cost of obtaining a loan as required under the Truth in Lending Act.

5. Get your home appraised. Your lender will order the appraisal to make sure it meets Federal Housing Administration guidelines. You’ll be responsible for making any necessary repairs that are required.

6. During the underwriting period your lender will finalize all details of the mortgage, including payment options. Underwriting may take a couple months.

7. Close on the loan. At the closing the interest rate for your reverse mortgage will be calculated and you’ll sign all the paperwork. The Truth in Lending Act gives you the right of rescission, or three business days after closing on your loan to cancel the deal with no questions asked.

You’ll receive the loan funds after the right of rescission period has ended. Depending upon the payment plan you chose, the money will be paid as a lump sum, installments, or with a combintion of both. Any existing debt on your home will be paid off and a lien will be placed on your house.