Gain cash via reverse mortgage Source of income for those over 62

April 18, 1993|By Michael Hernan | Michael Hernan,ALLENTOWN MORNING CALLThe Allentown Morning Call

When older Americans begin searching for more retiremen income, many don't realize that a huge potential source is sitting right under their noses.

Actually, it's sitting under their roofs.

With a little-known loan called a reverse mortgage, homeowners over 62 can trade some of the equity in their houses for cash.

While a typical mortgage advances a lump sum in exchange for a series of payments, a reverse mortgage uses equity as security for a loan that doesn't have to be paid until the home owner dies or sells the house.

You pledge part of the equity built up in your home and then wait for the monthly checks to roll in.

"There are going to be a lot more people taking out reverse mortgages over the next several years," said Ken Scholen, founder and director of the National Center for Home Equity Conversion of Marshall, Minn. "They fit a lot of different situations, from someone who wants extra cash every month to someone who needs a lump sum."

Mr. Scholen believes reverse mortgages will catch on simply because the potential for the market is so big. Homeowners over 65 years old hold more than $1 trillion in home equity, he said.

Despite their advantages, reverse mortgages are still virtually unknown, even inside mortgage circles. Most older homeowners don't know they exist and many local mortgage brokers confess that they've never written one and aren't quite sure how they work.

So far, about 150,000 reverse mortgages have been placed nationwide, most of which have been public programs designed to help the elderly pay their property taxes.

The loans are now available in 43 states.

The clamor for reverse mortgages began in the early 1980s when tTC older homeowners -- many on fixed incomes -- sought ways to cope with monthly costs such as medical bills, taxes, insurance and food. Proponents relate stories about older couples scratching to meet bills while living in a house they own free and clear.

An example, courtesy of the Institute of Certified Financial Planners: A 75-year-old widow who owns a $100,000 home and secures a reverse mortgage at 10 percent, would receive monthly payments of $357 for the rest of her life.

The payout on reverse mortgages can take different forms, including a lump sum, a monthly payment for as long as you live in the house, or a line of credit that can be drawn on when needed.

You keep the title to the house, and you don't have to meet minimum income requirements. The amount received depends on your age the home's value and loan costs.

MORE INFORMATION

Here's where to find more information about reverse mortgages:

* The National Center for Home Equity Conversion, 1210 E. College Drive, Suite 300, Marshall, Minn. 56258. The center publishes newsletters and fact sheets on reverse mortgages, including the Reverse Mortgage Locator, which lists lenders that participate in the program.

* Ken Scholen of the NCHEC has written a 340-page paperback, "Retirement Income on the House." The address is NCHEC Press, 1210 E. College Drive, Suite 300, Marshall, Minn. 56258. Or call 1 (800) 247-6553.

* The American Association of Retired Persons' Home Equity Information Center, 601 E. St. NW, Washington, D.C. 20049.

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