Make us your home page

Reverse mortgage can provide a valuable option

Reverse mortgages allow people 62 or older to borrow against their home equity. But these arrangements are not to be entered into unadvisedly or lightly, because reverse mortgages are actual loans that must be repaid in full — when you move, when you sell your house or upon your death, rather than in monthly installments.

But, said David Certner, AARP's legislative-policy director, it's something to consider "if you want to remain in your current home and don't have other options."

"If the one asset you have is your home, a reverse mortgage will let you turn it into a payment stream," Certner said. "Maybe you simply need a home-equity loan, or to sell the home and move to something smaller. For a lot of people who want to stay in their own homes, the reverse mortgage is one way to help accomplish that."

Though home values have dropped steeply since the real estate bubble burst in 2006, many older Americans have owned their houses for decades and have vast amounts of equity to tap.

Yet of the millions of home loans originated between 1990 and 2010, just 660,000 were reverse mortgages, AARP says.

Why? Because reverse mortgages can be complicated, sometimes pricey affairs compared with the financial alternatives.

There are three kinds of reverse mortgages, but the lion's share — 95 percent — are home equity conversion mortgages insured by the Federal Housing Administration.

They cost more than traditional mortgages. They have no income or medical requirements, and the cash can be used for any purpose, such as medical bills.

The older you are, and the more equity you have in your house, the more you can borrow. To qualify, borrowers must own their properties outright or have small mortgage balances; occupy the properties as principal residences; and not be delinquent on any federal debts, such as income taxes.

Advantages to reverse mortgages include:

• How you get the money is your choice: in fixed monthly payments, a lump sum, a credit line or a combination of the three.

• Even if you receive more in payments than your home is worth, you will never owe more than the home's value.

• You retain title to your home.

Among the disadvantages:

• Lenders, who must be FHA-approved, may charge servicing fees during the loan's term.

• Loans may carry variable interest rates tied to short-term indexes, although the AARP says more than 70 percent now have fixed interest rates.

• If interest rates are fixed, you must borrow the maximum amount against your home's equity.

• Refinancing your existing mortgage or taking out a home-equity loan or line of credit may be a less expensive alternative to a reverse mortgage, which can have substantial upfront fees.

Reverse mortgage can provide a valuable option 06/02/11 [Last modified: Thursday, June 2, 2011 9:39pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Philadelphia Inquirer.

Join the discussion: Click to view comments, add yours

  1. Tampa man pleads guilty to forging check for fake investment

    Personal Finance

    A Tampa resident was convicted Thursday for forging a check for a fake investment. The Florida Office of Financial Regulation said that Eric Franz Peer pleaded guilty. He served 11 months in jail and will have to pay $18,000.

  2. Minority business accelerator launch by Tampa chamber to aid black, Hispanic businesses


    A "minority business accelerator" program was launched Thursday by the Greater Tampa Chamber of Commerce geared toward helping black and Hispanic business owners identify and overcome barriers to grow their companies. The accelerator, known as MBA, will provide participants with business tools to cultivate opportunities …

    Bemetra Simmons is a senior private banker at Wells Fargo, The Private Bank. She is also chair of the new minority business accelerator program for the Greater Tampa Chamber of Commerce. [Photo, LinkedIn]
  3. Terrier Tri brings unique triathlon training to South Tampa


    Over a decade ago, Robert Pennino traded late nights in the music studio for early mornings in the Terrier Tri cycle studio.

    Terrier Tri, a cycling studio in South Tampa celebrates a grand opening on June 27. Photo courtesy of Tess Hipp.
  4. New bistro hopes to serve as 'adult Chuck E. Cheese'


    YBOR CITY — Inside Cheezy's Bistro and Speakeasy, a new restaurant opening in Ybor City, customers will find a mix of family recipes, games and secrecy.

    Cheezy's Bistro and Speakeasy readies to open in Ybor City. Photo courtesy of Cheezy's Bistro and Speakeasy.
  5. Ramadan having an economic impact on local charities, businesses

    Economic Development

    TAMPA — Dodging the rain, a few families and customers gathered inside Petra Restaurant on Busch Boulevard. Around 8:30 p.m., the adham (or call to prayer) music begins, signaling Iftar, the end of the daily fast. Customers grabbed a plate to dig into the feast.

    Baha Abdullah, 35, the owner of the Sultan Market makes kataif, a common dessert that is eaten during the month long celebration of Ramadan in Tampa. [OCTAVIO JONES   |   Times]