Sunday, March 22, 2009

Reverse Mortgages

Such challenging times for those of us who thought we were retired, or about ready to retire, and then discovered our stock portfolios decimated. So now we find ourselves scrounging for other ways to raise passive income. Starting a new career or returning to a previous one is not an option for many of us.

One promising area for homeowners is the Reverse Mortgage. This is a product that allows you to access the equity in your home without taking on a new payment like a Home Equity Line of Credit, or Second Mortgage. Basically you take out a new mortgage, and the interest accrues as with a regular mortgage, but you don't have to pay this interest until you sell the home. That's a very simple description of a complicated instrument, but if you intend to remain in your current home for at least 5-10 years, and you have a big chunk of equity in it, you might want to consider this idea. The ceiling on the amount you can borrow has recently been raised, which opens this type of mortage up to many people.

Of course the first place to start is by talking to a Reverse Mortgage specialist in your area. I found Tricia Smith of
to be extremely helpful. She has offices in Medford and Ashland, Oregon.

The second step is to arrange for a session with a HUD-approved agency that offers counseling. This is required in order for you to take out one of these loans, and is very helpful in helping you understand all the fine print. And since these 3rd party agencies do not make any money from the loan, they have no vested interest in talking you into anything. Reverse Mortgages are not for everyone, and you need to clearly understand if it meets the needs of your individual circumstances or not.

The fees are hefty, especially the insurance policy you pay to FHA, but this is a way to make sure that you or your heirs never end up "upside down" when it comes time to sell your house. FHA insures that the amount you owe will never exceed its fair market value. So while you may not have a lot of equity left when you sell your house, at least noone will owe money as is the case with some mortgages where the property has declined in value. But be prepared to pay for this peace of mind!

The following are nation wide agencies that can profide face-to-face OR phone counseling:
1) AARP - 1-800-209-8085
2) National Foundation for Credit Counseling - 1-866-698-6322
3) Money Management International - 1-877-908-2227

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