A reverse mortgage can add up

Question: My wife and I are in our 60s, our house is paid off and we have no plans to move. What do you think about a reverse mortgage?

—Dave Cole,

Phoenix

Answer: Reverse mortgages are available to homeowners age 62 and older. The mortgage relationship is reversed; the mortgage company pays you every month and then gets its principal plus interest back when your heirs sell the house. You are essentially drawing on your home’s equity while still living in it.

Typically, the loan doesn’t need to be repaid until after your death. If the house sells for more than the loan balance, your heirs keep the difference.

Reverse mortgages are expensive. You pay a loan origination fee, closing costs and insurance. If you fail to maintain your property and pay homeowner’s insurance and taxes, you risk foreclosure.

Consumer Reports estimates that 54,000 reverse mortgages are in default, mostly due to homeowners’ inability to pay taxes and insurance. Before you call any lender, talk with a counselor approved by the U.S. Department of Housing and Urban Development. It’s free, and counseling is required by law to get these loans.

The counselor can help you figure out if you qualify and if a reverse mortgage is right for you.

By Dave Cherry Calll 12 for Action Mon Nov 12, 2012 A reverse mortgage can add up