Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to 'reverse' mortgages. They allow homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional bills.

In a 'reverse' mortgage you receive money from the lender and generally don't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principle residence. Reverse mortgages can help homeowners who are house-rich but cash poor.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage are generally tax free, and many have no income restrictions.

There are three basic types of reverse mortgages:

1. Single-purpose reverse mortgage which are offered by some state and local government agencies and non-profit organizations;
2. Federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD);
3. Proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Single-Purpose Reverse Mortgages:

Single-purpose reverse mortgages generally have very low costs, but are not available everywhere. Also, they can only be used for one purpose as specified by the government or non-profit lender. Some example would be to pay for home repairs, improvements, or property taxes. In most case you can qualify for these loans if your income is classified as low or moderate,

HCEMs:

HECMs and proprietary reverse mortgages tend to be more costly than the other loans. The up-front costs can be high, so they are generally the most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling service. The counselor must explain the loan's costs, financial implications, and alternatives.

The amount of money you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of mortgage you select, the appraised value of your home, current interest rates, and where you live. In general, the older you are the more valuable your home and the less you owe on it, the more money you can get.

The HECM also gives you choices in how the loan is paid to you. You can select fixed monthly advances for a specific period or a long as you live in the home. You can also opt for a line of credit which allows you to draw on the loan proceeds at any time in amounts that you choose.

Considering a Reverse Mortgage?

If you are considering a reverse mortgage, be aware that:

• Lenders generally charge origination fees and other closing costs. They may also charge servicing fees.
• The amount you owe on a reverse mortgage generally grows over time.
• Reverse mortgages may have fixed or variable rates.
• Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for your heirs.
• Because you retain the title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don't pay these expenses you run the risk of your loan becoming due and payable.
• Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.