The first of two parts; read the second part here.
I'm 89 and my wife is 85. We're on a fixed income and find it very difficult to pay our bills, even though we're very frugal. We've been married 67 years. Is it a good idea to get a reverse mortgage on our home of 50 years?
It certainly sounds as if you should consider one.
I can't squeeze reverse mortgages into a single column, so this will be the first of two; the second will appear next week. This week: the basics. Next week: the potential pitfalls.
These loans are available only to homeowners who are 62 or older. The amount you can borrow depends on your age, the appraised value of your house and the government's estimate of future interest rates. Currently, an 85-year-old can borrow 63.5 percent of the appraised value of her house, says Mike Temares, a HUD-certified reverse-mortgage counselor at Nassau County Family and Children's Association, but this percentage may become smaller after Aug. 3.
You must use part of the loan to pay off any existing mortgage. You can take the rest as a lump sum, a line of credit, monthly payments or any combination of the three. None of it is taxable.
As long as you pay your property taxes and homeowners insurance premiums, no payments are due on the reverse mortgage loan until you move, die or sell the house. Then, you or your heirs must repay the loan plus accrued interest and fees. But your total debt can't exceed the market value of the house. If it sells for less than you owe the bank, federal insurance pays the difference. The cost of this insurance is included in the price of the reverse mortgage.
The bottom line A reverse mortgage can be a good source of income if you're 62 or older, house-rich and cash-poor.
TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday, 235 Pinelawn Rd., Melville, NY 11747, or email email@example.com. Include your name, address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.