Reverse Mortgages

April 17, 2008

Columbus, GA (WTVM)--"This is a product that would allow you to maintain ownership of the home, okay, at the same time, get an income source from that."

Consumer Credit Counseling's Larone Harper is talking about a reverse mortgage.

It's a special type of loan where homeowners convert part of their equity into cash.

And unlike traditional or "forward" mortgages, homeowners aren't making monthly payments.

In fact, they don't typically pay back anything until they sell the property, permanently move out or pass away.

"You could close the reverse mortgage, and never ever would the homeowner have to pay any fees any pricing as long as they're in the home," says Harper.

The money can be paid out in several ways including one lump sum, a monthly cash advance, a credit line or even a combination of those.

Harper says while reverse mortgages existed in the past, they've become more popular in recent years.

Americans are living longer and therefore facing more, unexpected expenses.

"The income maybe dried up because of the loss of a spouse, maybe the loss of some source of income that they had coming in after retirement," adds Harper.

Reverse loans are not only geared toward older people, most have a minimum age requirement of 62.

And with some programs, the home must be owned outright or have a low mortgage balance.

There's also typically a cap on the amount of equity that can be taken out.

Another important note is that the fees on reverse mortgages can be quite costly, especially at closing.

Plus, they are somewhat difficult to get.

Not every bank offers the product.  In fact, there are only a few places that do locally.

One of the most popular nationwide is an FHA backed product called HECM or Home Equity Conversion Mortgage.

It requires counseling and even a certificate before the homeowner can apply for the reverse mortgage.