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Reverse mortgage has good, bad points

Q. A while back we were hearing a lot about reverse mortgages, but we haven't seen anything about it recently. We are preparing to retire, and I am wondering if this is a viable option for us.

Because of rapid development in our Port St. Lucie, Fla., area, our equity has doubled.

A: Reverse mortgages have helped thousands of seniors increase their retirement income and pay off debts.

While only a small minority of eligible seniors have used a reverse mortgage, I believe we'll see the use of these products explode as baby boomers enter retirement.

Unlike a traditional mortgage, a reverse mortgage requires no monthly payments. Equity in a home can be paid out as a monthly income, taken as a lump sum or withdrawn as needed. Interest is charged each month and deducted from the home equity balance.

The most common reverse mortgage is the federally insured Home Equity Conversion Mortgage.

This mortgage guarantees a retiree can remain in his or her home until he or she dies or moves out. Any remaining equity in the home is the retiree's or his or her heirs. The lender gets none.

Reverse mortgages do have some drawbacks. First of all, they are not cheap.

The interest charged is comparable to a traditional mortgage, but the start-up costs are steep, in part to insure the loan. In addition, all persons on the title must be at least 62 or older. To learn more, call AARP at (800) 209-8085 and request the booklet "Home Made Money" or visit www.aarp.org/money/revmort.

Source: Scott Hanson

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