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Capitol Roundup: Medicaid expansion expected to help more than 625,000 Pennsylvanians

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<p>If you are retired and finding it hard to make ends meet, you might be tempted to take advice from familiar faces in TV commercials, such as Henry Winkler and Morgan Freeman. Using a folksy, soothing approach, they explain how turning your house into cash - without having to sell - can solve your financial problems and allow you to enjoy your golden years without a moment of worry.</p><p>A reverse mortgage is a loan against the equity in your home. You keep the title to your home and, instead of making monthly mortgage payments, you receive monthly payments from the lender &#8211; advances against the equity in your home. The money is not taxable and won&#8217;t affect your Social Security or Medicare benefits.</p><p>Those TV ads are persuasive, particularly to retiring boomers who think of &#8220;The Fonz&#8221; as a lifelong friend and Morgan Freeman as God, a role he played in a couple of films. If you&#8217;re over 62, chronically short on cash and have a couple hundred thousand tied up in your house, it might make sense to tap some of that wealth to pay the bills.</p><p>But a reverse mortgage can be also be an expensive and risky way to borrow, so it&#8217;s important to know exactly what you&#8217;re getting into.</p><p>When you have a regular mortgage, you write the lender a check every month, buying your home over 15, 20 or 30 years. In a reverse mortgage, the lender writes you the checks &#8211; monthly advances on your home equity. With a regular mortgage, your debt goes down every month. With a reverse mortgage, it goes up and, unlike a regular mortgage, the interest is not tax deductible.</p><p>You will be charged an origination fee, closing costs and servicing fees over the life of the mortgage and, if the loan is federally insured, mortgage insurance premiums.</p><p>As you receive monthly payments, interest accrues on the loan, which means your debt grows over time.</p><p>Most reverse mortgages have variable interest rates, which are tied to the financial markets. Some federal loans offer fixed rates but generally have lower borrowing limits and might require you to take a lump sum at closing instead of monthly payments.</p><p>With a reverse mortgage, you keep the title to your home. Although you don&#8217;t make a mortgage payment, you do pay property taxes, insurance, utilities, fuel, maintenance and other expenses. You may be required to set aside a specific sum to pay your taxes and insurance, which reduces how much you receive in monthly payments.</p><p>You&#8217;re at risk of foreclosure if you don&#8217;t have enough to pay the taxes, insurance and maintenance on the property.</p><p>There are three types of reverse mortgages: single purpose, proprietary and federally insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs).</p><p>The least expensive option is the single-purpose reverse mortgage, offered by state and local government agencies and nonprofit organizations for those with low-to-moderate income, but they&#8217;re not available everywhere. Single-purpose loans are just what they sound like; they can be used for only one designated purpose, such as home repairs, improvements or property taxes.</p><p>Proprietary reverse mortgages are private loans, backed by the lender and geared to more expensive homes so, if your home has a high appraised value and you have a small mortgage, you might qualify for a larger loan amount.</p><p>Home Equity Conversion Mortgages (HECMs) are federally-insured and can be used for any purpose.</p><p>HECMs and proprietary reverse mortgages tend to be pricier than traditional mortgages and can have steep closing costs.</p><p>How much you can borrow depends on your age; the type of loan, your home&#8217;s appraised value, current interest rates and your ability to pay taxes and insurance. The older you are and the more equity you have in your home, the more you can typically borrow.</p><p>Generally, you don&#8217;t have to repay the loan as long as you live in your home. The loan comes due if you sell your home, move out or die. If you die and your spouse&#8217;s name is not on the loan, he or she will be forced to repay the loan or sell the house and move.</p><p>Beware of salespeople with investment suggestions for your loan, such as an annuity or long-term care insurance. Don&#8217;t do it - you could lose the money. You don&#8217;t have to buy any additional products to get a reverse mortgage.</p><p>Finally, don&#8217;t let anyone rush you. Check with a counselor or someone you trust before you sign anything. If you don&#8217;t understand something, or if you feel pressure, walk away. Take your time, do your homework and talk to someone you trust until you feel comfortable.</p><style>
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<div class="metaInfo"><bylineMeta><p>Christine Young</p><p>Consumer Watchdog</p></bylineMeta></div><div class="metaInfo"><shirttailMeta><p>Reach Christine Young at consumerwatchdog@www.timesleader.com.</p></shirttailMeta></div>

Consumer Watchdog: Reverse mortgages are not for everyone