Save reverse mortgage for dire circumstances

HUMBERTO & GEORGINA CRUZ

The commercials on the radio bother us.

For all the wrong reasons, they say how easily we can tap the equity in our homes when we turn 62. We can get tens of thousands of dollars tax-free and use it for a vacation home or a new car. We dont need to have any income to qualify and wont have to make monthly payments.

The type of loan, incessantly promoted in Florida, is the federally insured Home Equity Conversion Mortgage, the most common among so-called reverse mortgages.

Reverse mortgages have attractive features. Instead of you making payments, the lender makes them to you. Because the money you receive is considered a loan and not income, no taxes are due. And because the payments you receive are based on the equity in your home (along with your age and prevailing interest rates), you dont need to earn income to qualify for the loan.

The loan doesnt have to be repaid until you move permanently out of your home or die or, in the case of a married couple, until both spouses move out or die. The home can then be sold to pay back the loan. If it doesnt fetch enough money to cover the entire amount due, the lender is out of luck and has no claim to any more of your money or your estate.

Alternatives to Reverse Mortgages

Some simple alternatives to reverse mortgages that you may want to consider first.

Consider Property Tax Postponement programs. Some states have programs that will pay your property taxes if you income falls under a certian level. When the home is sold the State will be reimbursed for the property taxes paid plux a modest amount of interest.

Other help may be available for home repairs and improvements, depending on the programs available in your local area. Contact your Area Agency on Aging and ask for more information. You can find the nearest AAA by calling (800) 677-1116 or by accessing the eldercare locator site at http://www.eldercare.gov and entering your state and zip.

Consider selling an un-needed life insurance policy. A life insurance settlement can provide you more money than the cash surrender value of the policy. For more information visit Life Insurance Settlement Guide for more information.



For the right people and the right reasons for example, retirees 74 and older facing cash-flow problems or rising health-care costs a reverse mortgage can be a lifesaver. But as with any other loan, a reverse mortgage comes with pitfalls and expenses, including high closing costs that often range from 6 percent to 12 percent and are factored into the amount you receive.

"Its not something that should be used for a vacation or to buy a boat," said Christopher R. Cocozza, assistant professor of business at DeSales University in Center Valley, Pa. "I would never recommend something that extravagant."

And yet stories tell us about senior citizens living large on what should be a mortgage of last resort and burning up home equity they might wish they had for a real need down the road.

"There has to be some level of prudence," said William J. Supper, director of financial planning for Massey, Quick & Co. in Morristown, N.J. "It has to be under the right circumstances."

The right circumstances usually begin at an age much older than 62. The older you are, the more money you get because the lender expects you to die (and have the loan repaid) sooner. As a rule, reverse mortgages make more sense for people 74 and older, Cocozza said.

Write to Retire Smart in care of Tribune Media Services, 435 N. Michigan Ave., Suite 1500, Chicago, Ill. 60611; or send e-mail.

AskHumberto@aol.com

GVCruz@aol.com

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