Keep the House But Get the Cash

By Michelle Singletary
Sunday, January 8, 2006; F01

As of the first of the year, older homeowners can tap into more of the equity in their homes with a reverse mortgage because of new, higher federal loan limits, according to the National Reverse Mortgage Lenders Association.

Although growing in popularity, reverse mortgages are still an unknown financial product for a lot of elderly homeowners. But if you're 62 or older and find that you are cash-poor and house-rich -- meaning you have a lot of equity in your home but little or no savings -- this is a product worth looking into. Or maybe you have some savings but just don't want to touch that pot of money.

This type of loan allows seniors to pull out the equity in their home in the form of a loan without selling or giving up title. The best feature: The loan doesn't have to be repaid until the homeowner moves, sells or dies. When the loan is repaid, any remaining equity is distributed to the borrower if he or she is alive or to the late borrower's estate. In addition, the repayment amount can never exceed the value of the home.

Borrowers can take the loan as a line of credit, a lump-sum payment, fixed monthly payments or a combination of these. And because the money received is in the form of a loan, it's not considered taxable income, which means it won't affect your Social Security or Medicare benefits.

There is a catch to this product. With a reverse mortgage, the amount of money you can borrow depends on your age, the current interest rate and other loan fees. It also takes into account the appraised value of your house and the mortgage limits for your area set by the Federal Housing Administration.

According to the National Reverse Mortgage Lenders Association, the changes affect two products: the federally insured Home Equity Conversion Mortgage (HECM), which accounts for 90 percent of all reverse mortgages made in the United States, and the Fannie Mae Home Keeper loan.

As with other FHA-backed loans, the limits for reverse mortgages went up this year in many parts of the country. To see what the limit is in your area, go to and click on the link for "Search/index." Then scroll down to find the link for "Mortgage limits."

The loan limits for HECMs vary by geographic area. The limit for homes in high-priced areas will rise to $362,790 from $312,896. The lowest loan limit, which generally applies to rural and non-metropolitan areas, will increase to $200,160 from $172,632.

Fannie Mae's national loan limit for single-family mortgages, including Home Keeper loans, will jump to $417,000 from the current limit of $359,650.

If you live in a higher-valued home but would like to cash out more than the FHA or Fannie Mae limits allow, consider a Cash Account loan.

I like reverse mortgages. They give homeowners a lot of flexibility and, increasingly, aren't just being used by cash-strapped seniors.

"I know one couple who at 76 and 75 used proceeds from their reverse mortgage and bought a new Harley-Davidson motorcycle with a side car," said Peter Bell, president of the National Reverse Mortgage Lenders Association. "There are basically three types of people who get these loans. There are need-based borrowers, who need the money to supplement what they are getting. There are security borrowers, who are getting by but want to add a reserve to pay for such things as emergency repairs. And there are lifestyle borrowers, who are doing okay on their retirement income but want to add some discretionary income."

To get an estimate of how much you might get in a reverse mortgage, check out AARP's "Reverse Mortgage Calculator" at . For more information, go to AARP's Web page on this topic at , or call 1-800-209-8085 to order a free copy of "Home Made Money: A Consumer's Guide to Reverse Mortgages."

If this is something you would be interested in, I suggest you get a booklet created by the National Reverse Mortgage Lenders Association. It's called "Just the FAQs: Answers to Common Questions About Reverse Mortgages." It's free and covers all the basics and more about reverse mortgages. Call 1-866-264-4466 (toll-free). Or order it online at .

There's another feature of reverse mortgages I like. Borrowers have to get counseling from HUD-approved counselors prior to obtaining a loan. For information about a HUD-approved counseling agency, call 1-800-569-4287. In fact, HUD recently announced it was expanding its network of counselors.

Good thing because, as Bell pointed out, it's important to get all the facts on reverse mortgages and learn how one would affect your estate.

On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at

By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.


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