Deciding on a Reverse Mortgage
Washington Post, Sunday, November 2, 2008

A number of questions will need to be answered to see if it’s a good move for your future.

"Whatever you choose to do, make sure you get competent advice before proceeding."
-Peter C.L. Timmons

Considering a reverse mortgage? Three experts describe circumstances under which a homeowner might want to get one. A reverse mortgage provides a way for seniors to borrow against the equity in their home with no repayment due until the homeowner dies, moves or sells. Any remaining equity after the payment goes to the borrower of the estate.

A reverse mortgage may be of a benefit if:

  • You need cash assets or income and have no other source available.
  • You are unable or unwilling to sell your house.
  • You do not care what the costs are to get the income or assets you need. (Recent law has helped limit the outrageous costs of reverse mortgages)
  • You have no concern about which assets are left to your heirs.

Make sure you thoroughly scrutinize all costs and provisions.

Other possible solutions to increase income to get to assets are selling the home to family members or establishing a home-equity credit line on the house.
- Drew Tignanelli, president of the Financial Consulate in Lutherville, Md.

Yes, if your sources of retirement income (savings, investments, pensions, Social Security) no longer cover your spending. But using the equity in your home should be a last resort after all other resources have been exhausted.

The payments to the homeowner from a reverse mortgage can be received in the form of a monthly annuity, lump sum or revolving line of credit. Compared with a typical home-equity line of credit, establishing a reverse mortgage carries significant fees, so the decision to obtain one should be extensively evaluated.

You should make sure it is a reverse mortgage under the Federal Housing Administration Home Equity Conversion Mortgage Program so that mortgage insurance will cover the lender if the proceeds from the eventual sale of the home are not sufficient to pay the amount owed.
- David M. Taube, founder of Kalorama Wealth Strategies in Washington, D. C.

In extreme situations, a reverse mortgage could be a good idea. Below are some reasons to consider obtaining one, especially if several of these conditions coincide:
  1. If you are house-rich and cash-poor.
  2. If you have unexpected expenses.
  3. If you need additional investment funds.
  4. If refinancing is not an option due to lack of income or assets.
  5. If fund received can be used in a controlled way.
  6. If you are older than 62.
  7. If you don't mind the high fees.
  8. If you are thinking of selling and want to hold off until real estate prices are higher.
  9. If you are aware of the possibility of losing Medicaid benefits.

Whatever you choose to do, make sure you get competent advice before proceeding.

- Peter C.L. Timmons, President of the T/R Financial Management Group in Washington D.C.

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