Transcripts

Money File-New Directions For Reverse Mortgages

SUSIE GHARIB: In the money file tonight, reverse mortgages. They can be great for older homeowners, but they do come with some strings attached. Here's Terry Savage, author of "The Savage Truth On Money."

TERRY SAVAGE, AUTHOR, "THE SAVAGE TRUTH ON MONEY": You probably know someone in this spot, a senior citizen who needs more income now that interest rates have dropped. One solution, an FHA insured reverse mortgage. If you're a senior age 62 or older with a fully paid home or only a small mortgage balance, a reverse mortgage may be the answer to your monthly income needs. It's a simple concept. Instead of paying money into a mortgage every month, you take money out of the equity in your home, a fixed monthly tax free check for life. No matter how long you live, as long as you live in your house, the checks will continue. And you can never be forced out of your home. How much cash can you get? That depends on your age, the value of your house and interest rates. For example, a 77-year-old woman with a $250,000 house could get a check for $1,000 a month for life no matter how long she lives. How does the lender get repaid? Well, when you die or move out of your house, the property is sold and the loan is repaid out of the proceeds. That's less for your heirs in the future because you're living on the money now. But you can never be forced out nor can you ever owe more than the house is worth at the time of sale. The money you receive from the reverse mortgage is not taxable income. It could affect eligibility for some government assistance programs, though. And, yes, there are significant fees, but they're all figured into the amount of your monthly check. Or you can take a lump sum, or just a line of credit to use if and when you need some cash. Now, the law requires seniors to get independent counseling from organizations like AARP before they sign up for a reverse mortgage, so there's plenty of chance to ask questions. To find a lender near you, go to www.reversemortgage.org or ask your banker who makes reverse mortgage loans in your town. I'm Terry Savage.