TBO.com - TBO is Tampa Bay Online

Is A Reverse Mortgage For You?

ADVERTISEMENT

The Tampa Tribune

Published: February 17, 2008

Doesn't it seem like every time you turn on your TV set or open your newspaper, you see an advertisement for a new financial product?

A good chunk of these products fall flat. But every once in a while, one will take hold in a way that even the experts didn't see coming.

These days, that hype is about reverse mortgages.

Designed for people 62 and older, these mortgages - which aren't all that new but have recently taken off - enable you to have a bank buy back your home while you're living in it. It provides an income you can opt to receive in a lump sum, a monthly payment or a line of credit that you can draw upon.

Sounds like winning the lottery, right? Not quite. You have to pay the money back (plus interest) when you vacate or sell the home, and there are fees. Still, these mortgages have a place. Here's what to consider joining the frenzy:

Age. These mortgages aren't for everyone, but the older you are, the more likely you are to benefit. For one, you probably have more equity in your home. But the other reason is this: Banks calculate the payout based not only on the value of your home, but also your age and average expected length of life.

Your situation. A reverse mortgage probably isn't for you if you're not planning to stay in your home for a long time, so consider that upfront. Then think about other factors related to your current and future lifestyles. People get these loans for many reasons, says Peter Bell, president of the National Reverse Mortgage Lenders Association. Some do it to finance an active lifestyle in their retirement, others because the home needs to be repaired or updated with health care equipment.

Note: If you're hanging on to this home not for your own pleasure or comfort but because you think your children will want to live in it someday, have a discussion to make sure that's the case. If not, consider downsizing.

Alternatives. If you've made all possible cuts to your budget and still need some extra income, do some research into benefit programs you may be eligible for, either from your state, the federal government or your formal employer. You can also look into a home equity loan or line of credit.

Fees and interest rate. These mortgages are paid back when the home is sold, typically as a result of the borrower moving or passing away. The fees, also paid at that time, tend to be higher than those associated with a traditional mortgage. Bell says figures vary by product but typically average 5 percent of the home's value.

The lender. There aren't a ton of banks out there offering reverse mortgages, but you still need to make sure you work with a reputable one. First thing to know? By law you're required to seek independent counseling before signing. Your bank should give you a list of counselors in your area who can help you sort through the nitty-gritty and determine if the lender - and product - is for you.

If you decide to seal the deal, stick to what you came for. Lenders may try to layer on other products, such as long-term care insurance or annuities, that you just don't need.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT