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10 tips: Reverse mortgages offer many beneifts

By LAURA T. COFFEY
Published June 18, 2006

1. Your age matters. For most reverse mort-gages, a borrower must be at least 62 and must live in the home as a principal residence. Generally, the older you are and the more valuable your home is, the more money you can tap.

2. Learn how the loans work. Most reverse mortgages require no repayment as long as you live in your home. The loan must be repaid in full, along with interest, when the last living borrower dies, sells the home or moves away.

3. Understand the lender's role. A lender - typically a bank - will provide you with a loan in an amount ranging from 20 to 60 percent of your home's equity. In exchange, the lender will receive a portion of your home's value when you die or sell the home.

4. Choose a payment preference. The loan can be paid to you in three ways: as a lump sum, in regular monthly or quarterly installments or as a line of credit you can tap as needed.

5. Know your responsibilities. Borrowers are responsible for property taxes, insurance and home repairs. Your loan could become due and payable in full if you fail to meet those responsibilities.

6. Get free help. Don't sign a service agree-ment with anyone who promises to help you find a reverse mortgage lender or apply for a loan. Such help is available at little or no cost from the U.S. Department of Housing and Urban Development or a HUD-approved housing counseling agency. Call HUD's toll-free Housing Counseling and Referral Line at 1-888-466-3487 for details.

7. Assess your status. If you own your home outright or nearly so, a reverse mortgage can help you financially at a time when you may really need it. But if you owe quite a bit of mortgage principal, you'll usually have to pay that off first. (You can do that via a lump-sum advance on your reverse mortgage, which may or may not make financial sense.)

8. Assess neighbor-hood real estate prices. Over time, a reverse mortgage whittles away at the home equity you built up over the years. But if you live where home prices are rapidly rising, your home's equity could continue to go up despite your reverse mortgage. You can never count on such rapid increases to last forever, however.

9. Consider Home Equity Conversion Mortgage. It's the only reverse mortgage insured by the federal government, and the money you borrow can be used for any purpose.

10.  Inform yourself. To read "Home Made Money," the AARP's consumer guide to reverse mortgages, visit http://assets.aarp.org/www.aarp.org_/articles/revmort/homeMadeMoney. pdf or call toll-free 1-800-209-8085 to order a free copy.

Sources: AARP (www.aarp.org); Bank of America (www.bankofamerica.com/financialtools); Fannie Mae (www.fanniemae.com); U.S. Department of Housing and Urban Development (www.hud.gov).

[Last modified June 18, 2006, 06:04:20]