January 2007 Vol. 26. No. 1

Published by the Humboldt Senior Resource Center in Eureka, California. HSRC is a non-profit community-based organization offering services for senior citizens, multi-generational families and caregivers.

Protect your resources
All about reverse mortgages
Get lunch delivered in Eureka
Get help with energy costs
Retraining and working
Radios available for hearing newspapers
Medicare drug plans for January

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More and more seniors find their income is staying flat or dropping and their expenses continue to rise, sometimes at an alarming pace. Others find they are getting by, but they don't have the reserves to cover extra costs that come along or to do something enjoyable, such as take a little vacation or go out to dinner.

For those who own their own homes, it's a good time to revisit the whole idea of a reverse mortgage. More and more seniors every year have discovered that reverse mortgages are an excellent choice. AARP expects the number of seniors choosing this option to continue to climb sharply.

So what is a reverse mortgage? It's a home loan but with some important differences.

With a reverse mortgage, you don't need to worry about qualifying based on your credit history or income. You will be able to borrow a percentage of the property's value based on your age (if more than one borrower, the age of the younger one applies), the current rate of interest and other factors.

• you can take as much of it as you like in cash,
• you can leave the funds in a line of credit for later, and whatever you leave in the line of credit will continue to grow at an attractive rate, or
• you can take a supplemental income from the reverse mortgage that can be paid to you for as long as you (or either of you, in the case of a couple) live in your home.

And maybe best of all, everything you take out of a reverse mortgage is non-taxable and is not considered to be income by the IRS or Social Security.

And here's what makes a reverse mortgage so special - there are no payments to make until you no longer live in your home. And when you no longer live there (through death, sale of the property or relocation), you pay it back just as you would pay back any other home loan - you just repay what you owe, including interest over the years, and the rest of your equity still belongs to you or your heirs.

You need to know that the closing costs on an FHA reverse mortgage are considerably higher than those for conventional home loans, but none of those costs need to be paid out-of-pocket - they can all come from the proceeds of the home loan. Because of the relatively high closing costs, most experts recommend using a reverse mortgage only if you're planning to stay in your home at least several years.

There are exceptions, of course, but generally we recommend it be done when you're planning to stay there awhile, as over the years the very low interest rate will offset most of the initial closing costs, making it a cost-effective program over the longer term.

And that's it. If there is a downside, it would be that if you needed to sell and move in a year, you would have incurred the closing costs for only a short period. All in all, not much of a downside.

And the upside? It's huge - where else can seniors increase their income by hundreds or even more than $1,000 per month and not have to repay any of it for as long as they live there?

For further information, you can access several good web sites that will give you lots of information.

• AARP has a fine site at www.aarp.org. Do a search for reverse mortgage.
• The National Reverse Mortgage Lenders Association at www.reversemortgage.org/is also good.
• You can also access our own site at www.srfinance .com. There's a standard Q&A with the most common questions.

Or you can just call us (or any other reverse mortgage lender), and we'll be happy to give you the full details on what it can do for you.

W. John Moore is president of the Senior Finance Center in McKinleyville and has been doing reverse mortgages for 11 years. The Senior Finance Center is a member of the National Reverse Mortgage Lenders Association and the Better Business Bureau. He can be reached at 839-7500 or through e-mail, srfinance@sbcglobal.net.