BBB offers tips on reverse mortgages

Reverse mortgages have become a popular option for senior citizens as they try and stay afloat financially during these tough economic times. But, they can be confusing. Your Better Business Bureau explains why such a mortgage may or may not be an option.

A reverse mortgage lets you turn a portion of your home’s equity into cash, which is paid to you in one lump-sum, monthly payments, a credit line or combination of the three. You’re not required to repay the loan unless you die, sell or permanently move out of your home. Anyone over the age of 62, who owns a home, can qualify if there’s adequate equity in the home.

There are three types of reverse mortgages: single-purpose, which is offered by some state and local government agencies and nonprofit organizations; federally-insured, also known as Home Equity Conversion Mortgages, which are backed by the U.S. Department of Housing and Urban Development; and proprietary reverse mortgages, which are private loans backed by the companies that develop them.

Your BBB offers these reverse mortgage tips:

• Be wary because reverse mortgages are rising-debt loans. The interest is added to the principal loan balance monthly.

• Determine if you want a fixed or adjustable interest-rate. An adjustable rate means the rate can change over the loan’s life.

• Understand reverse mortgage interest isn’t deductible on income tax returns until the loan’s paid off in part or full.

• Beware of your home’s equity because a reverse mortgage can use up all or some of it.

• Ask about fees, such as loan-origination, closing costs, insurance premiums and servicing fees.

• Check out how a reverse mortgage may affect your eligibility for state and federal government assistance programs, like Medicaid.

It’s important to get the details of a reverse mortgage before signing a contract. Understand the conditions that could make the loan due and payable. Also, ask about Total Annual Loan Cost (TALC) rates, which show the projected annual average cost, including itemized costs. The Truth in Lending Act (TILA) requires lenders to disclose reverse mortgages’ costs and terms, including the Annual Percentage Rate (APR), payment terms and charges related to opening and using your credit account.

If you have questions regarding reverse mortgages, you can get help from your BBB, such as a list of BBB Accredited lenders and business reviews on ones you’re considering. Visit www.bbb.org or call (937) 222-5825 or (800) 776-5301.

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