Reverse Mortgages
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If a family member needs help meeting the costs of health care and
treatment-and he or she owns a home-you might want to consider obtaining
a reverse mortgage (RM).
A reverse mortgage is a type of loan that allows the conversion of
home equity into cash while retaining home ownership. They work much
like traditional mortgages, only in reverse. Rather than making a payment
to the lender each month, the lender will pay your loved one.
To qualify, a person must own a home and be at least 62 years old.
Depending on the plan, a RM becomes due with interest when your loved
one moves, sells the home, dies, or reaches the end of the pre-selected
loan term.
There are three kinds of RMs: Federal Housing Authority (FHA)-Insured,
Lender-Insured, and Uninsured. Each type varies in cost and terms, and
an attorney can help you determine which is appropriate. However, there
are a few things most RMs have in common:
· They are rising-debt loans with interest added to the principal
loan balance each month. The total amount of interest increases dramatically
over time as the interest compounds.
· All RMs charge origination fees and closing costs. Insured
plans also involve insurance premiums, as well as possible service charges.
· RMs use up equity in a home, leaving your loved one with fewer
assets.
· The initial loan advance at closing may be negotiated higher
than the rest of the payments.
· Legal obligation to pay back the loan is limited by the value
of the home at the time of repayment. This could include increases in
the home's appreciation after the loan begins.
· RM loan advances are non-taxable and do not affect Social Security
or Medicare benefits.
RM advances do not affect SSI benefits as long as your loved one spends
the advances within the month they are received. This also applies to
Medicaid benefits. Check with a benefits specialist at the local Area
Agency on Aging for further clarification. In addition, consulting with
an attorney or financial advisor before making this decision is essential
to help reduce potential financial risks and avoid any threat of foreclosure.
In general, it's a good idea to explore all other options before looking
closely at a reverse mortgage.
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