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Is a reverse mortgage right for you?

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The recession hasn't spared any age group, but it's been especially hard on seniors. More and more Americans 62 and older are turning to reverse mortgages to supplement their cash. But is it right for you?

FOX 5's real estate expert John Adams says a reverse mortgage is a way for seniors 62 and over to be able to tap into the equity of their home, even if they have no income. The bank uses age as a factor in determining the loan amount.

"Then they put that into a complex formula and come up with a number, and say based on the available equity and your age, we can afford to loan you this amount of money," said Adams.

You can take the money in a lump sum, payments, a home equity line of credit or a combination of all three. You don't have to pay it back. The home simply belongs to the bank after you pass away.

"The beauty of that is, for someone who is on a very limited income or no income, it gives them a way to be able to tap into the equity of their home to pay for current expenses," said Adams.

It can also allow people to stay in their own homes longer. But reverse mortgages aren't without controversy. Adams says when reverse mortgages were first introduced there was no government intervention. He says even though the Federal Housing Administration now insures all reverse mortgages, the fees associated with them are still high.

"So let's say you went and applied for one of these, were approved, you closed it and just got a home equity line of credit. You still haven't seen the first penny. You've got a $10,000, $15,000 balance, just on day one," said Adams.

It's why the FHA requires independent loan counseling, so that seniors  understand the loan and are aware of other options.

"It's not right for everybody, but in certain circumstances it can be a godsend," Adams said.

Before you decide a reverse mortgage is right for you, Adams says discuss it with your family and get advice from a financial planner. He also suggests checking with the BBB. As is the case many times, there are mortgage companies that prey on the elderly.
    
For more information on reverse mortgages, click here!

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