Shifting Your Mortgage Into Reverse

FHA reverse mortgages have county-specific lending limits that cap the amount of equity available. There are also "jumbo" reverse mortgages for those with more-highly valued homes. These jumbo reverse mortgages typically require the borrower to take a lump sum instead of monthly checks, but the fees are generally lower than those on FHA reverse mortgages.

The fees involved in FHA reverse mortgages average 5% of the property value, so you should only consider this option if you plan to stay in your home for more than a few years. If you have a shorter time horizon, you might be better off selling the home, paying capital gains taxes after the $250,000 exclusion ($500,000 for couples) and using the remaining money to rent a place to live.

Before they can be finalized, reverse mortgages require independent counseling to make sure they are an appropriate strategy. This is frequently done by AARP and other not-for-profit counselors.

New Deals in Reverse Mortgages

Pat Donohue, a certified senior advisor with Westmont, Ill.-based 1st Reverse Financial Services, says seniors are about to get more choices and better options in reverse mortgages. For example, he points out, Bank of New York has just started offering a new, lower rate on the most popular FHA product, the Home Equity Conversion Mortgage.

Until now, the HECM had a monthly adjustable interest rate that was 1.5% above the 1-year Treasury note rate. But starting this month, it will charge only 1% above the same index. (The rate for this HECM 100 was 6.97% as of Feb. 13.)

That small half-a-percentage-point difference may not seem significant, but it could add anywhere from $3,000 to $14,000 to the amount that can be withdrawn. You'll need to work with a Reverse Mortgage lender who carries that product.

To see how much money you might qualify for with an FHA reverse mortgage, go to ReverseMortgage.org and use its online calculator; you can also search for a reverse mortgage lender in your area.

Don't let fear or complexity deter you from considering a reverse mortgage. For seniors who love their homes, this is the reward for a lifetime of mortgage payments. And that's the Savage Truth.