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Message #685 Reverse annuity mortgages and gift annuities

mp3 #685 Reverse Annuity Mortgages and Gift Annuities For Senior Citizens (mp3 file)

When a 77 year old husband's heart began giving him trouble, he was forced to cut back on his work as a freelance pianist. Less work meant, of course, less income. And while he and his wife weren't in dire financial straits, they would have welcomed a little extra cash.

Like 75 percent of older Americans, this couple owned their own home. Thanks in part to rising property values, they had built considerable equity during their 14 years there. Selling their home would certainly give them financial security. However, it would also mean moving - something they had no desire to do.

But they found a way to cash in on their equity without selling their home. They took advantage of a increasingly popular financial vehicle known as a reverse mortgage. Now, in exchange for proceeds from the sale of their home, they receive monthly cash payments from their lender, for the rest of their lives. A reverse mortgage is a special type of home loan that lets homeowners convert a portion of the equity in their home into cash. Basically, the equity that is built up over years of home mortgage payments can be paid to you. But unlike a traditional home loan or a second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.

"This program is terrific for people like us," the husband says. "We don't have children. We don't have anyone who's depending on inheriting our property. So we might as well leave it to ourselves."

This couple's reverse mortgage is one of a growing number of programs that fall under the heading of home-equity conversion using a home as security for lump-sum loans, monthly cash installments, or even deferred property-tax payments.

Depending on the program, repayment if not due until you die, sell, or move, or until the loan term expires. The lender takes what is owed -- principal, interest and, in some cases, property appreciation -- from home-sale proceeds.

Some programs are designed for the truly needy; others are for people who just want extra cash to enhance their lives. Common to most programs are two requirements: (1) applicants must be of a certain minimum age; and (2) they must own considerable equity in their home or own it free and clear.

Now, a program sponsored by the U.S. Department Of Housing and Urban Development (HUD) is generating more interest in home-equity conversion. While reverse mortgages have become quite popular, the HUD program was one of the first established and offers several payment options.

Among the options available to qualified homeowners are the following:

(1) shared-appreciation reverse mortgages. Under these plans, borrowers may stay in their homes for the rest of their lives or until the property is sold. In return, the lender receives not only the principal and interest owed, but a portion of the property's appreciation.

The homeowner chooses in advance how much appreciation to forfeit to the lender. In general, the more appreciation forfeited, the higher the monthly payments.

(2) fixed-term reverse mortgages. These mortgages offer homeowners monthly income for a certain period - typically three to 12 years. After the loan term expires, the owner sells the home to pay back the loan.

Fixed-term reverse mortgages are best suited to older homeowners or those planning to move within a given number of years, since lifetime occupancy is not guaranteed.

(3) charitable-gift income plans. A handful of non-profit institutions, such as hospitals and colleges, offer income in exchange for a promise to bequeath the home. Options can include lifetime monthly income, income for a fixed number of years, or a lump-sum payment. These types of plans might be good option for those people who do not have heirs and who really want to spend their estate but want to make sure that their estates will go to a charitable cause after their debt.

(4) property-tax postponement. Californians age 62 and over may defer paying property taxes on their homes until they die or sell their home. When the home is sold, the state collects the deferred tax payments, plus interest.

Before committing themselves to any of these plans, homeowners should be sure they understand exactly what they're getting into. Many people may be contacted by firms who promise to give the name of a lender for a "small percentage" of the loan. HUD does NOT recommend using an estate planning service or any service that charges a fee for just referring a borrowing lender. HUD can provide this information without cost. HUD-approved housing counseling agencies are also available for free, or at minimal cost, to provide information, counseling and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency service near you.

AARP also provides more information regarding reverse mortgages on their website at You can also order a consumer’s guide to home-equity conversion, "Homemade Money," by calling AARP at 1-888-OUR-AARP.

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