These new reverse mortgages can be
a useful source of cash in retirement
Reverse mortgages have long been regarded at risky, last resort choices for cash-strapped retirees. They don't require repayment while you're still living in the house.
Today's new products are safe and have a good reputation as government-backed loans. Economists like Nobelist Robert Merton have endorsed them, especially as a source of emergency funds. Here's what you need to know about a reverse mortgage.
* Age is a factor. You have to be at least 62 to get a reverse mortgage. Formally known as a Home Equity Conversion Mortgage, it can amount to 50 percent to 70 percent of your home's value, depending on your age. The older you are and the more equity you have in the house, the more you can get. Visit reversemortgage.org to estimate your borrowing limit.
* Your cost to set it up. They're more expensive to set up than simple lines of credit. The cost can be $5,000 or more. The initial insurance premium is 0.5 percent of a home's value.
* You can take the money as a monthly payment, lump sum, or line of credit to tap as needed. Financial planners say the line of credit is the best option. Interest rates are about the same as on a regular HELOC (home equity line of credit). You pay interest only on the amount you have used.
* Your spouse is protected. A non-borrowing spouse can stay in the home as long as it's his or her primary residence, even if the spouse is too young to be a borrower.
* You still have to pay property taxes and for homeowner's insurance.
