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Understandable information and explanations of reverse home mortgages, how they work, when they make sense and the costs involved. You'll find information, support, resources and many related pages.

Reverse Home Mortgage Info

One of the newest and more innovative financial tools for the Senior Citizen, today, is the reverse home mortgage.  Already very popular, as the info on the reverse home mortgage becomes widespread, and as "Baby-Boomers" reach retirement age in large numbers, this may become the most popular home mortgage vehicle.  The reverse home mortgage solves a major financial problem for Seniors, but has a significant cost.  We'll discuss what a reverse mortgage is, when it makes sense, what the costs are, and how it affects your taxes.

What Is A Reverse Home Mortgage?

A reverse home mortgage is a loan instrument that allows Senior Citizens (age 62 or older) to borrow money against their home's equity.  You can get this money in a lump sum, a line of credit or monthly installments.  How much money you can borrow depends on your age and the value of the equity in your home.  The HUD site Reverse Home Mortgage Info has a lot of information and a mortgage calculator you can use to figure out how much money you can borrow.  The regulators seem to have taken much of the risk out of the system, for instance, you never have to pay the loan off until you're done with the house, so, you can't lose the house for missing a payment.  The amount you can borrow with FHA approval is also set so low that you're not at risk of running out of equity before you no longer need the home.  I know, this sounds like the other sites...all upside.  I'll get to the downside when we discuss the costs.  Even with high costs, the reverse home mortgage can solve a financial problem common to many seniors.  To help you get more info, here are the latest, top-selling books on the reverse mortgage.

When Does A Reverse Home Mortgage Make Sense?

Because of the costs involved, a reverse mortgage doesn't make sense when you have enough income and liquid assets to satisfy your needs and most of your wants.  Also, the closing costs suggest it doesn't make sense if you're within only a few years of vacating your home.  A reverse home mortgage makes sense when you don't have enough income but you have lots of equity in your home.  It also makes sense if you don't care about the costs and want to have fun while you can with the money you have earned (in my opinion, this is the best reason).  You don't really have to worry about the costs, because they aren't due until you're done with the home...usually, that's when you're done with everything else, too.  Some will want to make large gifts or donations with part of the equity from their home and want to see the money used.  They could get a lump sum or line of credit reverse mortgage for this purpose.  If you're not concerned about the cost, these are the kinds of situations in which a reverse mortgage makes sense.

The Costs Of A Reverse Mortgage:

In my opinion, this is the only drawback to a reverse is very expensive money.  First, there are closing costs that are higher than conventional mortgages.  Second, many lenders charge monthly "service charges"...I don't know why.  Third, the interest rates are quite a bit higher (currently 10%-vs-5.5% conventional mortgage, 2005).  Last, but not least, because you make no payments, the interest is compounded monthly.  This means you pay interest on the principle borrowed and on the accumulated interest.  When I say "you pay" I really mean your house pays, because everything will come out of the equity when you're done with the house.  The mortgage is literally paid by the growth in equity as your home's value increases.  At the end of a 20 year period, a $ 500,000 home can be expected to be worth $ 2 million based on average appreciation of about 8.5% per year.  As you'll see from the debt information below, there is no time over 20 years that the loan exceeds the equity value.  In fact, if you remain in the home for 20 years, you could pay off your loan and have around $ 1 million to spare. Still, these costs of money are very high.  If you can get the money you need any other way, it would probably cost less.

If you borrow $ 1,000 per month on $ 500,000 in home equity:
In 7.5 years, you will have borrowed $ 90,000 and owe about $ 45,000 interest, for a total owing of about 135,000.
In 15 years, you will have borrowed $ 180,000 and owe $ 180,000 in interest, for a total of $ 360,000.
In 22.5 years, you will have borrowed  $ 270,000 and owe $ 765,000 in interest, for a total of $ 1,035,000. 

Taxes And The Reverse Mortgage:

Since a reverse mortgage is not income, you pay no taxes on the money and the income does not affect your Social Security.  Unfortunately, the only tax deduction from all that interest comes after you sell your house, in one lump sum.  Still, if the costs aren't a problem, don't sweat the taxes.

Finally, it isn't a very pleasant task to plan your money so your life will run out, first.  You should know, no matter what happens and how well we plan, there is someone watching over us who loves us and wants us to have all the best.  That is God.  If you want His help to plan and get through this phase of your life, click on God Help Me.

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