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Reverse Mortgage

Mar 16, 2008
Reverse Mortgage Market Open To Baby Boomers: Several million baby boomers are turning 62 years old this month. Many are exploring the benefits of reverse mortgages. Most analysts seem to agree that reverse mortgages are a wise idea. Everyone has an opinion and not all of those opinions are in agreement with the analysts on this matter.

It is important to do your own homework and make important decisions such as this, based upon your own unique situation. Be sure to read as much small print as you can find, remembering that small print will often reveal important drawbacks (as well as the benefits) of this type of mortgage. It is important to see both sides of this coin.

Reverse mortgages have been around for 40-50 years, although they have become extremely popular since the turn of this century. This mortgage is a loan against your property that does not need to be paid back as long as you live in your home on that property. If you permanently move, sell the home or die, your estate will pay back the money and the accumulated interest.

The existing mortgage should be paid down by at least 40% in order to establish qualifying equity in your property. The funds realized by a reverse mortgage are based upon the amount of equity that you have built up in your property. Additionally, the property is your "income verification" and there are no requirements to prove income sources, meet credit score levels or satisfy value-to-debt ratios.

Qualifying For The Reverse Mortgage: A reverse mortgage has very little impact on Social Security Administration (SSA) or Medicare benefits. However, it depends upon the actual source of your Social Security your payments. If your SSA represents monthly retirement payments, you are safe.

BUT, if your Social Security payments are from disability benefits, you must be very careful. It is important to read the small print about the reverse mortgage and then check the Social Security Disability Insurance (SSDI) program rules. The disbursement of these funds may be considered income that could impact your benefits.

Making The Decisions: Since you can choose the best method of disbursements for these funds - lump sum, monthly payments or a line of credit - a reverse mortgage does give the borrower some flexibility. Also, the interest rates are generally lower than a refinanced traditional mortgage and there are no underwriting or closing costs to be paid. Generally speaking, reverse mortgages are considered tax-free income. However, that is an issue for your tax preparer. Two things to consider before making any decision to sign for this mortgage are: 1) the length of time you expect to stay in this home and 2) your age at the time you apply for this mortgage.

The National Council on Aging is an excellent source of information for seniors. There are also Elder Care Attorneys who are available for consultations on matters of this sort. Financial planners are an invaluable asset for information about this issue. If a reverse mortgage sounds like a good fit for you, contact one of these sources to discuss the pros and cons of letting your home fund your retirement years.
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