Reverse Mortgage Not Worst Idea, But Think Hard


Now that the government has tightened rules on reverse home loan mortgages that it insures, could this be the time to consider one? Umm, maybe. But only carefully.

The Department of Housing and Urban Development said it has lost a lot of money on these loans, which allow seniors to tap equity in their homes. Borrowers can get cash through a line of credit, a lump sum payout or a regular payment stream. Money you receive must be repaid when you die or vacate the home for a specified period. But since this is a non-recourse loan, if the value of the loan exceeds that of the home, the homeowner or estate can just walk away from it.

As of Oct. 2, the upfront insurance premium on these loans was bumped to 2 percent of the loan amount (subsequent annual premiums fell to 0.5 percent). Also, the payout amount was cut. The AARP Public Policy Institute figured that a 62-year-old borrower getting a reverse mortgage with a 5 percent interest rate will now be able to draw 11 percent less money than under old rules. 

So while such a loan may not be a measure of last resort to fund the jubilee years, it still remains far from the top of the list.

You May Also Like

Downtown History Brick by Brick, Beam by Beam

BY STEVE DINNENBanking and insurance industries did an admirable job building the economy of ...

Europe Takes the Lead in Protecting Your Data

BY STEVE DINNENAbout those emails popping up from European companies you do business with: ...

Investing in Real Estate a Challenge, But It Has Its Fans

BY STEVE DINNENWhen polled by Bankrate about where they would invest money that they ...