Father's Day: Reverse Mortgages
BOSTON (CBS) - We have all seen the commercials on TV for Reverse Mortgages. Henry Winkler and now Tom Selleck are making them sound like we all need to get one as soon as we are eligible.
A reverse mortgage allows you to borrow against the equity in your home and the money does not have to be paid back until you die or want to move. Sounds very tempting.
To be eligible you must be at least 62 years old and own your home although you can still have a mortgage. And nearly 40% of seniors age 65 and older carry a mortgage today.
But at 62 if you are healthy you can look forward to another 30 years in retirement and you have just tied up your largest asset.
There are some stricter rules in effect; HUD (Department of Housing & Urban Development) now requires extensive counseling and budget planning before they will sign off on the loan. And new regulation prevents the homeowner from taking all of their equity immediately. They must wait a year for the last 40% to be available.
These mortgages are not for everyone. They may be best for a cash strapped elder who wants to stay in their home! Elder being someone in their late seventies or early 80s. An individual who is on a fixed income and living in their own home and wants to stay in their home may find a reverse mortgage gives them the cash they may need to make repairs or modifications on the house so they can continue to live there.
I am not a big fan of reverse mortgages. As an alternative you might just consider selling your home, pocketing the profit and moving into a smaller less expensive place or even elder housing or an assisted living facility. Financially you would be ahead of the game.
There is no free lunch here. There are upfront fees. Lots of them. I used the median listing price of a house in Boston of $350,000 and using an online calculator you would be entitled to a lump sum of 186,500 to $206,500.
You can choose to receive the proceeds from a reverse mortgage as a lump sum, in fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or as a combination of these.
The Federal Trade Commission, HUD and the AARP all have helpful information on reverse mortgages. The FTC's toll-free number is 877-FTC-HELP (877-382-4357).
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You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
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