You can own your home and have the bank pay you to live there. It's not a dream; it's a reverse mortgage. But there are some catches.
At 82, Ruth McMullen wants to live her life to the fullest. "With the reverse mortgage, I could stay in my house and use the value of my home doing things I need to do or things that give me pleasure to do or things I won't be able to do after I die."
With her reverse mortgage, Ruth can travel, spend money on her family, pay for a personal helper when needed and enjoy the home she's lived in for thirty years.
"A reverse mortgage is the opposite of a forward mortgage in that you extract value from your home which you can get in cash," said banker Al DeSalvo.
The income is based primarily on the value of your house, your age, and whether you take the money as a lump sum or in monthly installments. If you take out a reverse mortgage, you still own your home. You are responsible for interest on the loan and taxes.
Here's an example. On a house valued at $100,000 whose owner is 75 years old, about $77,000 could be taken in a lump sum, minus insurance and other fees.
In monthly installments, the homeowner would get close to $400 a month. When the homeowner dies or moves, the outstanding balance on the reverse mortgage must be paid, usually by selling the house.
For Ruth, a reverse mortgage was the perfect choice. But American Association for Retired Persons warns it's not for everyone. "There are downsides that may affect your ability to get benefits, it affects your estate. Whether you are able to leave your house to your kids," said Fred Griesbach.
AARP recommends only FHA approved reverse mortgages because they mandate counseling with an independent housing agency before any transaction can take place.
Weigh all other options for obtaining your financial goal and finally consult close friends and an attorney. "It's nice to know that the last years of your life however long that may be are a little more pleasant and you have a little control over some things that you do. Cause you don't have much," said McMullen.
You must be at least 62 years of age to apply for a reverse mortgage.