Your Money at Work: May

Community Comments

Reverse Mortgages: Financial Rescue or an Expensive Way to Tap Equity

By Kelly Brothers

Hazel McCullough of South Sacramento had a tough year in 2002. Her husband died, her home needed work and her credit-card debt was growing. The 71-year-old had heard the ads for reverse mortgages and eventually became desperate enough to make the call. 
    Today, she feels like a financial burden has been lifted. “I feel great and don’t have to pinch pennies anymore,” McCullough says.
    A reverse mortgage (RM) on her $160,000 home has relieved her of a mortgage payment ($254/month) and on the first of every month she gets a check for $230. She’s out of debt, her home is in good shape and after 21 years in it, she knows she’ll never be forced to move for financial reasons.
    McCullough is a typical RM customer, a widow whose home is her greatest asset. Unlike the usual mortgage that’s based on your ability to pay, an RM is based on the equity in your home and your age.
    You and your spouse have to be 62 to apply for an RM, but because it’s a “nonrecourse loan,” the occupant could live to 130 and not be forced to move out of the home. And if the payments exceed the value of the home, the homeowner’s estate cannot be held liable.

Selling and Funding
Continued...

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