reverse mortgage

Case Study Reverse mortgages have gained popularity as retirees decide to meet a portion of their living expenses by liquidating the wealth that has accumulated in their homes. These loans are only available to individuals 62 years of age or older who live in their homes. The amount of money that can be obtained from a reverse mortgage depends on the appraised value of the home, the age of the homeowner, and the current interest rate. The older the borrower, the lower the interest rate, and the more valuable the home, the greater the amount of funds that can be borrowed. Funds may be drawn as a lump sum, as a series of fixed monthly payments for a lifetime or a predetermined period, or as a line of credit that may be drawn on as needed. The home can never be taken from the homeowner, and no repayment is ever required as long as the homeowner stays current on taxes and insurance while continuing to live in the home. Funds received from a reverse mortgage are not considered income and, as a result, are not taxable. On the downside, the fees and costs involved in a reverse mortgage can be considerable. Expenses include an origination fee to cover the lender's operating expenses (several thousand dollars), a mortgage insurance premium to cover the possibility the loan servicer may go out of business (2% of the maximum claim amount), an appraisal fee ($300 to $400), closing costs ($800 to $1,000), and a monthly service fee set-aside of $30 to $35.