Reverse Mortgages 101
As money becomes tight during the golden years, retirees are banking on their homes -- in reverse.
By taking on a reverse mortgage, borrowers aged 62 and older can cash in on the value of their home and avoid paying back the loan for as long as they live in the property. These types of mortgages help retirees lessen their expenses and increase their monthly cash flow. Borrowers can generally receive their reverse mortgage cash in either one lump-sum, a regular monthly cash advance or as a line of credit.
But while a reverse mortgage can offer much needed supplemental income for retirees, it has some expensive downsides. The greatest risk is perhaps the upfront fees that are involved. For example you could give back 7% to 10% of your withdrawal in the form of fees. Borrowers don't pay this out of pocket, but it does come out of the proceeds.
For example, a 65-year-old couple that owns their home free and clear may get less than half the value of the home at that initial withdrawal due to fees and partially because of their age. The longer retirees wait, the more money they'll usually get.
On the bright side, the earnings from a reverse mortgage are typically free from taxes and many reverse mortgages have no income requirements. For more information visit
the American Association of Retired Persons' Web site
or the Federal Trade Commission's Web site at
.
Farnoosh Torabi joined TheStreet.com TV in July 2006 as the site's first official video correspondent. Previously, Farnoosh was a business producer and on-air reporter for NY1 News, Time Warner's 24-hour news channel in New York City. Farnoosh is a regular columnist for AM New York and has written for Money, Time, New York Daily News and Newsday. Farnoosh is a graduate of Pennsylvania State University, with a degree in Finance and International Business and holds a M.A. from the Columbia School of Journalism.