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Reverse Mortgage - The Right Direction?

By: Todd Levinson

With so much uncertainty surrounding the fate of the current housing market, it is, perhaps, predictable that people are looking at numerous ways to secure their financial futures. An ever growing population of retirees, having had it good for many years, is now looking toward a rather less rosy horizon, than the one that they had anticipated. For many, savings aren't nearly as safe as they were, and property values have plummeted. And it doesn't look as if things are going to be showing signs of significant improvement, any day soon.

One way that a growing number of seniors are hoping to improve cash-flow, is by considering a reverse mortgage. Established in 1987, as part of the U.S. Department of Housing and Urban Development (HUD), reverse mortgages are often considered controversial, thanks mainly to some high profile incidents involving unscrupulous lenders. Reverse mortgages can offer a genuine lifeline, but they can be complicated and should be negotiated only with care.

So, what exactly is a reverse mortgage? It is essentially, a loan. It is borrowed against the value of your home and, as long as you remain in the home, it does not have to be repaid. In order to qualify, the homeowner must be 62, or older. The loan can be paid in a number of ways, as a lump sum, or in monthly payments, for example.

As tempting as this might sound, particularly to those retired folk without dependent heirs to worry about; the cost of a reverse mortgage can be extremely high. Aside from the origination fees and insurance premiums, there will also be interest charges, which naturally increase over the duration of the loan. On the upside, these will only be payable upon death, or when the borrower moves permanently from the house. Obviously, this will seriously impact on any inheritance you might have intended to leave for heirs of any kind, or on the monies received should you sell.

There are a many variables that need to be considered, with regards to a reverse mortgage. Before committing to any plan, as with most significant financial decisions, it is highly advisable to shop around and get a feel for the various options available. Perhaps you could actually benefit more, from selling your current home and buying something smaller, releasing equity without paying the premiums? Seek as much impartial advice as you can and make sure that you take advantage of the free HUD-approved counseling available via the website at www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm or by calling 1-800-569-4287.

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