Avoid tapping retirement cash
FHA reverse mortgages offer senior home owners and additional way to access home equity in this slumping economy. Below I’ve cut and pasted part of an article I found on the Fidelity website. The article suggest that cash strapped borrowers consider lowering their bills, consider a home equity loan, personal loans, borrowin against assest, tapping insurance, turning to family, and taking out a reverse equity mortgage.
Take out a reverse mortgage
A second option for homeowners is a reverse mortgage, which allows a borrower to convert home equity into cash while continuing to live in the house. These products are available only to homeowners older than 62 who fully own their homes or have a small mortgage.
“Instead of borrowing from a bank, (reverse mortgage) borrowers pull money out of their home equity through a lender,” says Anthony Perrelli, an attorney and partner with Hedeker & Perrelli estate planning firm in Chicago. “They can either repay the loan with interest at the end or they can forget about it and when they die, the bank can take their house.”
For example, if someone owns a $400,000 home and needs $50,000 in cash, a reverse mortgage will provide the funds as a lump sum or a monthly cash payout.
The borrower can then pay the loan back and restore equity in the home or have the loan with accrued interest subtracted from the full value of the home upon death. Whoever inherits the home can then sell it, pay off the debt and take the leftover proceeds.
“Reverse mortgages also come with certain protections,” says McMahan. “Even if the value of the house goes below the value of the mortgage, nobody can make you move and after you die, the debt is forgiven for your children.”
While reverse mortgages can provide cash in an emergency, they come with pricey fees based on the value of the home rather than the value of the loan.
According to the U.S. Department of Housing and Urban Development, regardless of how much borrowers take out, they can expect to pay an origination fee of up to $6,000 (2 percent of the first $200,000 of the home’s value plus 1 percent for any equity over $200,000) and an insurance fee of up to 2 percent of the home’s value.
Borrowers are also responsible for paying closing costs, which may include appraisal, title search surveys, inspections, mortgage taxes and credit check costs, as well as monthly service fees of up to $35.
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