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Tapping Your Home Equity
Creators Syndicate
FIGHT BACK! BY DAVID HOROWITZ
Tapping Your Home Equity
By the time they reach retirement age, older homeowners often
have a lot of equity built up in their homes, especially if the house
is paid for. And yet, many of these same people are "home-rich and
cash-poor," struggling just to get by on a limited income. They could
be using that money for other things --medical expenses, back taxes,
travel, major purchases or additional monthly income.
In a reverse-mortgage arrangement, homeowners put up a portion
of the equity in their homes. The lender than pays that out in either
a lump sum, regular monthly installments, lines of credit or a
combination of all three. Because it's a loan, the additional income
is tax-free. The loan is paid off when the homeowner either moves or
dies and the property is sold.
But reverse mortgages are not free, and they are not for
everyone. First of all, reverse mortgages are usually more expensive
than conventional home-equity loans. The homeowner must pay
substantial setup fees plus points, closing costs and compounding
interest -- all of which is added to the amount of the loan. A reverse
mortgage also pledges the property to the lender, which means it
cannot be left intact to the borrowers' heirs.
Those are the negatives. On the positive side, reverse
mortgages allow homeowners to get out from under old debts, pay off
medical expenses, make home improvements, save their property from
foreclosure or simply enjoy a higher standard of living with the extra
income.
Reverse mortgages are available in all states except Alaska,
South Dakota, Texas, the District of Columbia and Puerto Rico. This
may change in Texas. A federal court recently overturned a provision
of the Texas state constitution, which effectively forbids home equity
loans of all types. The attorney general in Texas plans to appeal the
court's ruling.
Taking out a reverse mortgage is not a step anyone should take
without consulting a family member, trusted friend or professional
financial advisor. The Federal Housing Authority rules now require
third-party counseling on FHA insured reverse mortgages. Homeowners
should also compare reverse-mortgage costs with the cost of a
conventional second trust deed or home equity loan.
If you'd like to know more about how reverse mortgages work,
write to any of the following addresses for free information:
"Home-Made Money": This is a consumer's guide to reverse
mortgages and a state-by-state list of lenders. Write to the American
Association of Retired Persons (EE0618), P.O. Box 22796, Long Beach,
Calif., 90801-5796.
"Facts For Consumers: Reverse Mortgages": Write to the Federal
Trade Commission, Public Reference Branch, Washington, DC, 20580.
"Reverse Mortgage Locator": This is a state-by-state list of
lenders that is updated monthly. Send a check or money order for $1 to
the National Center for Home Equity Conversion, 7373 147th St., Apple
Valley, Minn., 55124.
If you have questions or comments, please write to David
Horowitz at 72662,1775. COPYRIGHT 1994 CREATORS SYNDICATE, INC.
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