Reverse Mortgages provide a cash cushion

BY SAUL FRIEDMAN MCCLATCHY-TRIBUNE NEWS SERVICE
Many older homeowners are just getting by -- or worse. Retirement savings plans are down. Those 401(k)s have not grown enough to be counted on for retirement. Pension funds are hurting.  But if you're an older homeowner with sufficient equity to qualify, there could be some relief in a Home Equity Conversion Mortgage, also known as a reverse mortgage.
This type of mortgage allows homeowners 62 and older to convert part of the equity in their homes into tax-free cash without having to sell the home, give up the title, or take on a new monthly mortgage payment. It's called a reverse mortgage because instead of the homeowner making a payment to the lender, the lender makes payments to the homeowner. The lender eventually gets its money back when the home is sold or the owner dies. Any excess cash made from the home sale is returned to the owner or the owner's estate. The Federal Housing Administration guarantees the mortgage, meaning the borrower is protected from losing the property, and the lender is protected from losing the money, if the value of the property declines below the worth of the loan.
The proceeds may be taken as a line of credit or as payments.
Few have taken advantage of it, partly because they don't like to mortgage a home that's free and clear, or they're concerned about heirs. For fiscal year 2009, which ended Sept. 30, there were 114,692 reverse mortgages done in the United States. For Michigan, there were 2,088 reverse mortgages done in that same period.