Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am with Mary Beth Franklin, Senior Editor of Kiplinger's Personal Finance magazine to talk about Reverse Mortgages. Mary Beth, it sounds like a backwards loan. How does it work?
Mary Beth Franklin: That's exactly how it works. It's like a mortgage but in reverse. Instead of you paying the bank each month to buy a house, the bank pays you each month to stay in your house.
Kevin McCormally: So, do I have to own my house free and clear to get one of these?
Mary Beth Franklin: Yes not only you have to own your house, not free and clear, even if you have an existing mortgage, you can pay that off and rap it into the reverse mortgage but the key is you have to be at least 62 years old.
Kevin McCormally: Okay, and so do I get monthly payments from this?
Mary Beth Franklin: There is three ways you can get money out of your house through a reverse mortgage. One is you can get monthly payments or you can get a lump sum or even in combination, you can have a line of credit for emergencies.
Kevin McCormally: Okay so I'll have coming money from the bank to me and then do I have to make payment at the same time back to the bank?
Mary Beth Franklin: No, that's the beauty of it. The whole idea is to allow older people who are house rich and cash poor to be able to unlock some of the equity in the house. So at no point while they are living in their house, do they have to pay back the loan.
Kevin McCormally: I should say that, like an annuity almost coming from the house to the home owner and then one is the debt repaid.
Mary Beth Franklin: After the home owner either moves out permanently or dies and at that case, the home would be sold and the proceeds from the sale of the house would go to pay back the reverse mortgage, anything left over would go to your heirs.
Kevin McCormally: And what happens if the value of the house plump and say that actually the debt is bigger than the loan at the time of death?
Mary Beth Franklin: Well, that's actually one of the beauties of a reverse mortgage that even if you end up having borrowed more then the house is worth, they cannot done you for that extra amount of money. Your heirs is protected, they won't get stuck with the bill.
Kevin McCormally: Okay, who's using this kind of mortgages? Who's finding the beneficial?
Mary Beth Franklin: Older people, the fact the older you are, the more money you can borrow. That's also tied to the value of your home and interest rates at the time. So this is really, it's an expensive proposition because the fees are very high but for someone who wants to stay in their home and maybe retrofitted with something for wheelchair or ramp that sort of thing, it's a great way to stay at home, fix up your home and have some merry time.
Kevin McCormally: So it's an alternative to assist in living or a nursing may be.
Mary Beth Franklin: Exactly, this is the ultimate way of aging in place.
Kevin McCormally: Okay, thank you very much.
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