Moving Forward on a Reverse Mortgage

Although a mortgage loan can take up a big chunk of your life, it does eventually pay off. As homeowners reach the golden years of debt-free home ownership, they can use their homes to obtain loans at favorable terms. One way to tap into your home equity is through a reverse mortgage which provides cash for things you need right now, according to Debbie Miller for The Journal Newspapers.

A reverse mortgage loan turns the tables. All those years of writing monthly mortgage checks have created a source of income-- the checks are now coming to you. The maximum amount depends on your age, the current interest rate, and your home's value. In order to qualify, you must: be 62 years or older; own your home free and clear or owe just a small amount; and use your home as a primary residence.

The application process is different from qualifying for a standard mortgage or consumer loan. There are no requirements regarding income or credit history. You don't have to justify why you need the loan, or show other sources of income or assets. Your main obligation is to protect the collateral--in other words, maintain your home in good condition. That includes paying property taxes and insurance as well as making necessary repairs.

And of course you must follow the loan terms. When is the loan due? When you sell the house, when the survivor of the borrower moves and no longer uses the residence, or when the survivor dies. You can pay off a reverse mortgage in any number of ways. Although the usual method is by selling the property, it's not required. You can refinance with a new mortgage, or use other assets such as life insurance proceeds.

How much will you owe?
That depends on the value at payback time but you'll never owe more than the value of your home. That's one of the major advantages of a reverse mortgage, according to Miller. If the appraised value of the home is more than the amount owed on the loan, you'll actually come out ahead and receive the excess. But if the opposite is true, and the loan amount exceeds the appraised value, you don't owe anything.

You can take the loan proceeds in the form of monthly income, as a lump sum, as a line of credit, or a combination of the above. It pays to shop around with different loan providers and different loans to see how much cash is available on your home.

A word of caution: Beware of rip-offs. See Watch Out for Mortgage Fraud. Look out for your own interests and don't let friends, relatives or business solicitors pressure you into taking out a loan. Here are some reliable sources of information on reverse mortgages:

Housing Counseling Clearinghouse: (888) 466-3487

National Eldercare Locator: (800) 677-1116 Ask for your local Agency on Aging.

AARP Home Equity Information Center: (202) 434-2277