Reverse Mortgages

A reverse mortgage can be a lifeline for a senior, depending on the reason it isused and the age of the senior who uses it. Generally, it is best to delay using a reverse mortgage for as long as possible so that in the case of long-term illness or other catastrophe, the senior still has the reverse mortgage as an option.

A reverse mortgage is a loan on the value of the property just like a regular mortgage. The difference is that for a reverse mortgage, the proceeds are given to the homeowner in any combination of a lump sum, periodic payments or a line of credit, and neither monthly payment nor repayment is due until the homeowner passes away or moves permanently out of the home. Hospital stays and extended stays in convalescent facilities are not considered permanent moves unless they last for more than a year.

The Federal Housing Administration (FHA) has requirements that must be met in order for a senior to qualify for a reverse mortgage. The homeowner must be at least 62 years old and must own the home free and clear of liens. If there is a mortgage balance on the home, a senior may still qualify if the reverse mortgage proceeds are sufficient to pay off the existing mortgage.

Usually,no credit or income qualifications are necessary to obtain a reverse mortgage,although there are points, fees and costs associated with it, some of which need to be paid up front. Most types of homes qualify for a reverse mortgage including mobile homes and condominiums.

Reverse mortgage loan proceeds are not considered income and are therefore not taxableas such. Unlike a traditional loan, however, interest paid on a reverse mortgage is not tax deductible until the loan is paid off. Reverse mortgages can enter foreclosure if homeowner's dues, real estate taxes and insurance are not kept current, or if the property is not kept in good repair.

For seniors who are financially strapped, a reverse mortgage may ease their financial burden, but care should be taken when obtaining a reverse mortgage. Additionally, a reverse mortgage should be used as a last resort after all other options, such as downsizing, getting a roommate and the like, have been exhausted.