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Is a Reverse Mortgage for You?

Many older Americans find themselves house rich and cash poor. They own their home, or at least have significant equity in it, yet struggle to make ends meet each month. They could sell their home, but aren?t inclined to move and leave their memories behind.

However, a reverse mortgage may be the answer they seek. A reverse mortgage is a loan against a home that borrowers don't have to pay back for as long as they live in their house. It basically converts equity into cash, with no repayment required until the resident no longer use the home as a principal residence. 

One version of this product is the Federal Housing Authority's Home Equity Conversion Mortgage, which allows borrowers 62 years of age and older to withdraw some of the equity in their home. This provides a much-needed financial boost to their income. But, the home must be a single family home or a one-to-four unit home where the borrower actually lives. Additionally, HUD-approved condominiums or manufactured homes that meet FHA guidelines are also be eligible.

There are no restrictions on personal income, but the amount you can borrow does depend on your age, current interest rate, value of your home, or FHA's mortgage limits for your area. Generally speaking, the more valuable your home is and the older you are, the lower the interest rate will be and the more you can borrow.

Seniors can use the money for emergencies, medical expenses, home improvements, or to pay off debt. But they're still responsible for the taxes and insurance associated with the property. 

In order to receive an HECM, the borrower must meet with a HUD-approved housing counselor who has passed a special HECM exam prior to obtaining the loan. This legally protects the consumer since the terms and options associated with a reverse mortgage can be complicated. 

Consumers need to fully understand that the up-front costs can be quite steep, and that money received from a reverse mortgage can be counted as income or an asset that restricts eligibility to some government programs. A reverse mortgage may not be your best option, and the counselor's role is to review all the options available to you. 

Conversely, reverse mortgages can be a perfect solution for some people. Feel free to keep asking questions at your counseling session, until you completely understand the reverse mortgage product. And, be sure to inquire if there might be a better option for you. If your financial need is short-term, there may be community programs that can help.

The NFCC Member Agencies have close to 500 certified HECM counselors. If you're considering a reverse mortgage, talk through your options with an NFCC Member Agency certified housing counselor. To be automatically connected to the agency closest to you, call toll free (800) 388-2227, or to find a counselor online, visit www.HousingHelpNow.org. 

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Contributor

Gail Cunningham serves as vice president of membership and public relations for the National Foundation for Credit Counseling (NFCC), Inc. based in Washington, D.C. During over two decades in the industry, she has provided one-on-one financial counseling to thousands of consumers, and reached tens of thousands more through hosting television shows related to consumer education on cable and network television, as well as writing a weekly financial education column that appeared in multiple newspapers and online sites. She has been a featured financial expert for the nation’s top media outlets, including: NBC Nightly News, Good Morning America, the New York Times, the Washington Post, CNN, National Public Radio, USA Today, Newsweek, Forbes, Smart Money, MSN Money, Bankrate.com, the Associated Press, FOX Business Network and Bloomberg News.

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