Feb 20, 2012 11:59 PM
TUCSON - Imagine a mortgage that pays you money. You get to do what you want with the cash and the government picks-up any shortfall.
It's called the Reverse Mortgage. People disagree if they are a good idea but reverse mortgages are paying off for more and more seniors.
Maryannette Bednar revved-up a reverse mortgage and tapped a chunk of cash, essentially a loan from a mortgage company, using the equity in her Tucson home.
"And I spent all the money rather quickly on things that I wanted like ‘wheeee!", she explains with a laugh. "Didn't go around the world with it, but it allowed me to do a lot of the things I wanted to do."
This retired educator bought a travel trailer and says she's having a blast while she's still young enough to do it.
"I'm not leaving my house to anyone. My nephews are pretty well set. I don't have any children, and so I figure I might as well take all the value out of my house and use it for me."
Financial experts like Margo Garza with Take Charge America, a consumer credit counseling service, say reverse mortgages can make a lot of sense.
"The retirement community has homes that are paid for and so you have dead equity not doing anything for them, and they're tapping into that resource."
With reverse mortgages you can get a lump sum from your home's equity or get monthly payments. And those payments continue as long as you stay in the house even if you live long enough to tap-out all of your equity.
There are no worries if your home's value goes down as government insurance will make-up any shortfall.
"It's not for somebody who's not going to stay in the house for a long time."
Glen Smart of Nova Home Loans says you should only consider a reverse mortgage if you plan to stay in your home long-term. There are closing costs and insurance costs involved.
He says some clients worry about having less equity to leave to their heirs by doing this but says there's another side to that issue.
"It's true that there's less equity in the house at that point, but what did you do with all this cash? Did you invest it? Did you pay off charge cards? You're not leaving this pile of debt to your kids, either."
Maryannette says she will take out another one.
"So I'm looking forward to the next reverse mortgage when the housing market goes up a little bit, but I tell a lot of people 'have you thought about doing this,' and it worked out well for me."
You have to be at least 62 years old to do a reverse mortgage. Mortgage or financial pros can guide you on this.
And a reminder, if you're struggling with a potential foreclosure, Credit Counselors from Take Charge America will be available to review your situation, free of charge. Click here for more information.