REVERSE MORTGAGE

By Dr. Marion Somers, Ph. D., Ask Dr. Marion

QUESTION: Can you briefly explain a reverse mortgage? Molly in Nebraska, 47

ANSWER: A reverse mortgage is an interesting option that was introduced less than a decade ago. It's not for everyone, but it can work well for those elderly individuals who lack assets other than their home. Each situation is very specific, so you must carefully weigh all of the factors such as health, age, the value of the home, and inheritance wishes.

Senior citizens over the age of 62 are eligible to apply for a reverse mortgage. It works like a loan against the value of a home. A homeowner basically borrows money from a bank by using the house as collateral once a fair appraised value has been agreed on. The best way for most seniors to utilize a reverse mortgage is to determine a monthly budget that will support their accustomed lifestyle, and then have the bank issue a check in that amount each month. Calculate the monthly payment as near to the monthly living expenses as possible in order to make the "nest egg" last longer.

If the home increases in value and a senior has tapped into only a portion of the reverse mortgage before he passes on, then the relatives or heirs can pay back the equity that has been paid to the senior (plus similar fees that are found in other kinds of mortgages), and retain the rights to sell the home at full market value. What happens when the senior is no longer a resident in the home, either because he moves to another location or passes away? Basically, the reverse mortgage payouts cease and the home must either be sold or retained by the relatives if they payback the amount of reverse mortgage that has been issued.