Understanding Reverse Mortgages

Added January 4, 2007 by Ilyce R. Glink

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Summary: In general, a reverse mortgage is something you consider if you have no other alternative and want to stay in your property. Reverse mortgages tend to be expensive, relatively inflexible, and they will eat up most of the equity in your property. Much research is needed before deciding to get a reverse mortgage.

Q: I'm a 66-year old man and former IBM employee (I still own every share I ever bought). I retired last year on disability, and have no dependents or heirs except for my 92-year old mother, who is in fine health.

I have scads of equity in my home, and I also own an investment property that is currently rented in Huntsville, Alabama. What would be the downside or risks to my getting a reverse mortgage? Where would I find out about the costs and fees?

A: My first thought, after reading your letter, is why would this guy want to get a reverse mortgage? It sounds as though you have plenty of cash to live on. And if you want more money, you can start to sell your stock.

In general, a reverse mortgage is something you consider if you have no other alternative and want to stay in your property. They tend to be expensive, relatively inflexible, and they will eat up most of the equity in your property.

But perhaps that's what you're trying to do. You have no heirs or responsibilities, other than your mother, of course. So perhaps you're trying to follow the advice of some of the best-selling personal finance authors and "Die Broke."

If you are going to get a reverse mortgage, I urge you to do a little research. Try www.reverse.org, which is a website run by Ken Scholen, who originally helped formulate reverse mortgages, has written an excellent book on the subject and who now works for AARP. There is helpful information up on the websites of www.homepath.com (Fannie Mae's website, search for "reverse mortgage") and at www.HUD.gov.

You may also want to contact lenders in your area and request that they give you an itemization of costs that would be associated with a reverse mortgage.

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