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Home Equity Loans-Reverse Mortgage-Is
There One in Your Future
Reverse mortgages
have gotten a lot of publicity lately and will probably get a lot of
press in the future as baby boomers near retirement age. What are
they? Who can use one? Is there a reverse mortgage in your future?
WHAT ARE REVERSE MORTGAGES
A reverse mortgage
is a home equity loan or line of credit that is secured by the
equity in your home. You do not repay as long as you live in the
home. The reason it is called a reverse mortgage is because it is
the opposite of a regular home equity loan where you reduce debt and
build up equity. In a reverse mortgage you reduce equity and build
up debt. That is where the money comes from.
WHO CAN USE REVERSE MORTGAGES
Basically anyone
who is over age 62, owns and lives in their own home and has paid
off at least 60% of the loan can apply for a reverse mortgage. There
is no proof of income requirement.
USES FOR PROCEEDS
The money can basically be used any way you wish. Frequent uses
are travel, home improvements, medical expenses, and supplemental
income. The amount you may receive depends on a lot of factors one
of which is how you receive the money. Your age, the location of the
home, interest rates, the type of program you select, and of course
the values of the home are some of the other variables.
OPTIONS
You may select to get monthly payments, a lump sum upfront, or a
line of credit that would allow you to draw on the account as you
needed it or a combination of the three. If you select a line of
credit with a "growing" credit line your available balance earns
interest. A withdrawal at the beginning of the plan could be offset
by the interest earned.
Since you still own the home you are responsible for taxes,
insurance, and upkeep. The loan has to be repaid at the death of the
owner, when it is sold, or if you move. The proceeds from the sale
of the house can be used to pay off the loan.
Reverse Mortgages have become increasing popular in the last several
years and will only grow in popularity as the baby boom market looks
for ways to finance their retirement.
AARP has some very good information on reverse mortgages at
www.aarp.org.
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