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Reverse mortgages

Television today seems filled with ads for reverse mortgages, usually endorsed by an actor or former actor. What are these mortgages? Are they a new way to buy a home? N.C. State University economist Mike Walden responds.

“Actually, they’re a way to get money out of your home. Reverse mortgages are only available for home owners who are 62 years old or over and who own their home with no debt. And effectively, what you do is, you take out a loan on the value of your home, and then the financial company that you’re dealing with will, in many cases, pay you — not you pay them — they will pay you a monthly amount of money.

“And then you can use that money to do anything, meet expenses, pay for health insurance, take a trip, whatever. And you can also set up these payments really for any length of time, including as long as you live.

“Now the big down side, of course, is when you do pass or when the amount of the loan comes due, you generally will have to pay that loan back from the sale of the house. Typically, that’s how these are set up, which means that if you are a homeowner and you’re looking at your estate and you’re saying, ‘Gee, one of the things I want to do for my children when I pass is give them my home,’ you likely won’t be able to do this if you take out a reverse mortgage. Or at least the ability to do give your children your home will be reduced.

“You also need to watch fees with reverse mortgages, and there will be an interest rate charged, which can vary from company to company. But if you need cash, you own your home, you’re 62 years old or over, this is a type of financial product to consider.”