Is a Reverse Mortgage for You?

I've been hearing a lot more about reverse mortgages lately. This is probably because lenders are facing a tighter market and more restrictions on sub prime mortgages. A growing number of loan companies are targeting older homeowners, many of whom have a great deal of cash tied up in home equity. Even major nationwide lenders like Countrywide Financial have jumped on the bandwagon.
In a so-called "reverse" mortgage, the bank pays the older borrower a portion of the home equity in a lump sum or regular payments. The debt is paid off when the home eventually is sold, the borrower moves out, or when he dies. The number of these loans has almost doubled in the last year... over 85,000 were generated in 2006.
Most of these loans are federally insured, and fixed rate, but don't be fooled.
Because of the complexities of the loans, and the loan fees, which are usually extremely high, these loans should be seen as a last resort for seniors who need cash and want to stay in their homes.
John Rother of the AARP advises that you will often be better off selling if your only objective is getting money from the house, because of the high costs of these loans. Financial advisers also suggest selling the home and investing the proceeds, because you are often able to draw only around 50% of the home's equity after interest costs and a protective cushion for the lender.