|I'm retired now and own my home outright, but I need money
to live on. How can I use my home to raise some money without selling it?
You may want to consider a reverse annuity mortgage, more
commonly known as a reverse mortgage. Developed to help the elderly find an
additional source of income while remaining in their homes, reverse mortgages
are steadily proliferating and in many instances are federally insured.
Generally speaking, reverse mortgages are offered at fixed
rates of interest. (Federally insured Home Equity Conversion Mortgages are also offered at adjustable rates.) All parties to the deed must be 62 or older before you can
qualify. When you apply, your lender appraises your property to determine how
much equity is available for you to borrow against. The older you are at the
time of your application, the larger the percentage of your equity you may
access. Once this amount is determined, you may borrow against it through one
of three types of reverse mortgages.
A tenure reverse mortgage pays you a designated sum of money
each month. The payment amount depends on your age, the equity in your home,
and the interest rate of the loan. As you receive your payments, both the
principal balance and the interest owed on the loan grow. Accumulated principal
and interest are repaid upon sale of the property, which may not occur (unless
you choose to sell) until after the death of the last party to the mortgage.
Thus, you can use a tenure reverse mortgage to supplement your monthly income
indefinitely. You do not run the risk of being required to sell your home.
However, the size of your estate will be reduced because you are continuously
reducing the equity in your home.
A term reverse mortgage allows you to receive preset monthly
payments for a specified length of time (the term of the mortgage). Generally,
all other factors being equal, term reverse mortgages will give you larger
monthly payments than do tenure reverse mortgages, simply because the term of
the mortgage is fixed rather than indefinite. When the term is up, the loan
must be repaid. This might be accomplished by refinancing your home with a
conventional "forward" mortgage. If this is not possible, however, and you have
no other means to repay the loan, you must sell your home to satisfy the
reverse mortgage. Thus, you might want to consider a term reverse mortgage only
if you plan to sell your home before the expiration of the term, and need money
in the meantime for medical care or home repairs.
An equity line reverse mortgage allows you to take different
lump-sum amounts of equity out of your home as desired or needed up to a
predetermined maximum amount. Depending on the mortgage agreement, the
principal amount you borrow, plus accumulated interest, may become due either
at a preset future date (as with a term loan) or at an unspecified date (as
with a tenure loan).