If You're Over 61, a Reverse Mortgage May Be a Better Choice for You
A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you want. The loan and interest are repaid only when you sell your home, permanently move away, or die.
Eligible Homeowners
All homeowners must be at least 62 years old.
At least one owner must live in the house most of the year.
Eligible Homes
Single family, one-unit dwelling.
Two-to-four unit, owner-occupied dwelling.
Some condominiums, planned unit developments or manufactured homes. NOTE: Cooperatives and most mobile homes are not eligible.
How They Work
Most require no repayment for as long as you live in your home.
They are repaid in full when the last living borrower dies, sells the home, or permanently moves away.
Because you make no monthly payments, the amount you owe grows larger over time. By law, you can never owe more than your home's value at the time the loan is repaid.
You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, the lender can use the loan to make payments or require you to pay the loan in full.
What You Get and How Much You Get
Reverse mortgages can be paid to you:
- All at once in cash;
- As a monthly income;
- As a credit line that lets you decide how much you want and when;
- In any combination of the above.
The amount you get usually depends on your age, your home's value and location, and the cost of the loan. The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs.
Most people get the most money from the Home Equity Conversion Mortgage (HELM), a federally insured program.
Types of Reverse Mortgages
Loans offered by some states and local governments are generally for specific purposes, such as paying for home repairs or property taxes. These are the lowest cost reverse mortgages.
Loans offered by some banks and mortgage companies can be used for any purpose.
The Cost of a Reverse Mortgage
The costs for loans from banks and mortgage companies usually include the following:
These costs are usually added to the loan balance (what you owe).
HECM loans are almost always the least expensive reverse mortgage you can get from a bank or mortgage company, and in many cases are significantly less costly than other reverse mortgages.
Reverse mortgages are most expensive in the early years of the loan and generally become less costly over time.
Before getting a reverse mortgage other than a government or HECM loan, carefully consider how much more it will cost you.
What Else You Must Know
The federal government requires you to see a federally-approved reverse mortgage counselor as part of getting a HECM reverse mortgage.
For More Information AARP Webplace: Understanding Reverse Mortgages
www.aarp.org/revmort
"Home Made Money, "a free booklet by AARP, is available by calling or writing AARP Fulfillment, 601 E Street, NW, Washington, DC 20049. Ask for stock number D15601.
Home Improvements
Your home is worth a lot to you ... but dishonest home contractors see the value in it, too. Every year, people spend billions of dollars for home improvements. Usually the work is done well, but each year many homeowners are victims of poor, overpriced, or never-completed work. Some people posing as home repair specialists are simply con artists looking for easy money. Others are "front men" for predatory lenders.
If you are planning on making repairs or improvements to your home, it is important to pick the right contractor and the right financing. Here's how.
Once you've found the loan you want, make sure you get the deal you were promised.
Identify what you want done and how much you can afford.
Write a detailed description of the work you want done, including the quality of materials, brand names and model numbers you want to be used.
Know how much you can afford to borrow and repay.
Take time to find a reliable home improvement contractor.
Get recommendations from friends, family and neighbors.
Check with the State, County and City Government Consumer Protection Offices or Better Business Bureau to see if there are any complaints against the contractor. However, having no complaints filed is no guarantee of reliability.
Have the contractor prove he is licensed, bonded, and has insurance. Check that information with local government offices.
Get two or three written estimates that give details about materials, labor charges, and start and finish dates.
Use the worksheet to help you ask the right questions to compare the bids you get.
Remember: A clear and detailed contract can protect you if something goes wrong. In general, a contract should spell out who does what, where, when, and for how much.
Don't be pressured to get your financing through a particular company.
Be cautious of financing offered by the contractor. Dishonest mortgage brokers anc contractors often work together to take advantage of homeowners.
Get several estimates for the financing, apart from the contractor's estimate.
Ask a lawyer or housing counselor to explain all the terms of the financing agreement.
Know your legal rights.
You can cancel the home repair contract by sending a letter within three business days, if the contract was signed in your home or somewhere other than the contractor's permanent place of business.
You can cancel the financing by sending a letter within three business days, and maybe even later, if your home is used as security for the loan.
If you think your contractor or lender is fraudulent, notify the police, the local consumer protection agency, your state Attorney General, and state/city office of banking.
Contact a lawyer. You may be able to sue the contractor or lender using state or federal laws.
Warning Signs
Be cautious if contractors:
Sell door-to-door;
Call you by your first name and act friendly.
Say they are doing work "up the street" or "in the neighborhood."
Claim to have left over material fro another job.
Talk fast to confuse you or pressure yore to sign immediately.
Accept only cash or want you to pay for the entire job upfront.