Katrina survivors could try a reverse mortgage

Q: MY PARENTS lost their home in the New Orleans area during the Katrina hurricane. They had insurance on their home, but it is not enough to rebuild a new home for them. They're in their mid-60s, have very modest incomes and need my help.

They will receive about $100,000 from the insurance company but a new home will cost about $200,000. I have about $40,000 to kick in to help them. My question is this: What would be the best way for me to structure this so it costs me as little as possible? I figure I will have to make the mortgage payments on whatever amount needs to be financed.

— Eddy, Roseville

A: Your parents are fortunate to have a son like you who is both willing and able to help them out. There are countless others who have been impacted by Katrina who are not so fortunate.

The traditional way for you to make this happen is to purchase the home jointly. Your parents would kick in their $100,000 insurance settlement, you would kick in your $40,000 savings and you would all be responsible for the mortgage payments, taxes and insurance. However, a less conventional approach may get your parents into a home without costing you a dime. Rather than using a regular mortgage to make up the difference between the down payment and the purchase price, you should consider using a reverse mortgage. Your parents could purchase an existing home using their down payment, and a federally insured reverse mortgage could make up the difference. Depending upon the purchase price, you might not be on the hook at all.

Unlike a traditional mortgage, a reverse mortgage requires no monthly payments. Interest is still charged on the outstanding balance, but rather than the interest being paid each month, it is added to the loan balance. Your parents are guaranteed the right to live in their home until their dying day, and any equity left in the home upon their death can go to their kids. In the event the home does not appreciate as fast as the interest accrues, they are under no obligation to pay the loan off when they vacate the home. I suggest you do some research on the reverse mortgage before you do anything else.

Call 1-888-973-8377 to speak with a Reverse Mortgage Specialist

Source: Bob Bruss