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I've been seeing ads on TV lately for reverse mortgages. So how do we know if they are for us?
A reverse mortgage converts part of your home's equity into cash. You don't have to repay until you no longer use your home or fail to meet the obligations of the mortgage.
Can you use a reverse mortgage?
The amount you can borrow doesn't have to do with income or credit score but rather your age, the current interest rate, the lending limit in your area and the value of your home. Usually the older you are and the more valuable your home, the more you can borrow and the lower the interest.
You still have to pay what sometimes is included in your escrow: homeowners insurance and taxes.
The loan becomes due to be repaid when you die or sell your home, do not pay your taxes, move, or allow your home to deteriorate. After death, your estate will pay the loan off with the selling of your home and your heirs would get whatever money was left over. So make sure to check with heirs on whether they want your home. If they do, the reverse mortgage is probably not the right solution because they will have to pay the loan back in another way besides selling the home.
You can get your money in six different ways:
Until Dec. 31, 2010 the loan limit for reverse mortgages is $625,500. You can use the money for anything.
Costs of a Reverse Mortgage
A reverse payment doesn't affect Social Security or Medicare benefits. However, it can affect Medicaid, SSI or other public benefits.
You are required to talk with a Home Equity Conversion Mortgage (HECM) counselor before you get a reverse mortgage. They will talk with you over the guidelines of reverse mortgages in person or one the phone. Make sure you talk to a counselor approved by the Department of Housing and Urban Development.
If you are thinking a reverse mortgage might be right for you, your next step would be to find a reputable HECM counselor.
(FatWallet finance discussion of this topic, "Reverse Mortgage Info")
This is a guest post from Andrew Wang who publishes Selling Time Share.
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