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The Online Advisor

July 2008

Smart Business

Reverse Mortgages: Need retirement income?


If you own your home and are age 62 or older, one option to increase your retirement income could be a reverse mortgage.

As the name implies, a reverse mortgage is the opposite of a traditional mortgage. With a traditional mortgage, you borrow a sum of money to purchase a home, then pay off the debt over time. With a reverse mortgage, you receive loan proceeds - as a lump-sum payout, an annuity, a line of credit, or a combination of all three - but make no payments as long as you reside in the property. The loan, with any accrued interest, comes due when you move out or pass away.

To qualify for a reverse mortgage, you need to be at least 62 years old and own the home outright (or have a balance that can be paid off with the loan proceeds). How much you can borrow depends on your age, the home's market value, and interest rates.

* The downside. Be aware that there is a downside to a reverse mortgage. Closing costs can be very steep, often over 5% of the home's value. In addition, borrowers may have to purchase mortgage insurance, and they're still on the hook for property taxes and homeowner's insurance.

Federal truth-in-lending laws require lenders to provide information about interest rates, payment terms, and other costs. If you're interested, shop for a reverse mortgage as you would for any other loan. Make sure the basic terms of competing loans are comparable. Then go with the lowest price by comparing interest rates, upfront fees, and other charges. If you need help, give us a call.



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