Q: I am 65 years old and my wife is 60 years old. We have been discussing the possibility of purchasing a reverse mortgage when my wife turns 62.

I would like to know the pros and cons of a reverse mortgage. In two years my mortgage will be about $260,000. In today’s market my home is worth about $425,000. Right now, I have a 5-year fixed adjustable rate mortgage at 4.5 percent. The initial 5-year period will expire in 2009.

A: The idea behind a reverse mortgage is to allow seniors age 62 and older to tap into the equity they have built up in their homes to augment their income or make necessary repairs to their home.

You can either get the cash in a lump sum, or as a home equity line of credit, where you can write a check as need be, or as a stream of income.

The best part about a reverse mortgage is the loan does not need to be repaid until the home is sold. If you’re worried about leaving cash to your heirs, most reverse mortgages do not eat up all your equity. Your estate would receive whatever proceeds are left after the reverse mortgage has been paid off.

To get a reverse mortgage, at least one of the owners of the property must be 62 years of age and your home must be mortgage-free or nearly mortgage free.

This is where you’ll run into a big problem. You now have a mortgage for more than half of your property’s value. Since the most you’d be able to borrow is about 60 percent of the value of the home (you’d be able to borrow more if you were in your 70s or 80s), you will likely not qualify for much of a reverse mortgage, if any.

That’s the bad news. The better news is that you do have about $165,000 in equity in your home. Once you retire, you might consider selling your home and buying something much less expensive in order to cut your cash outlay.

Published: Mar 4, 2005