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Housing

What is a "reverse mortgage"?

A reverse mortgage allows older Americans to receive cash for the equity in their homes. Instead of paying money to a lender as in a traditional mortgage, the lender would pay you monthly installments that reflect the equity in your home. You can continue to live in your home and the proceeds paid to you are tax-free, although you cannot deduct the interest on the reverse mortgage on your income taxes. The lender, in turn, then owns that portion of your home’s equity that you contract for. The loan usually becomes due when you die or sell your home. You can choose the way you want to receive the money: monthly payments, a lump sum distribution or line of credit.

SIDEBAR: You generally have 3 days to cancel a reverse mortgage after you have signed it. The cancellation must be in writing.

Will a reverse mortgage help me or hurt me?

The most attractive feature of a reverse mortgage is the ability to stay in your home. But reverse mortgages are more expensive than other traditional loans. A reverse mortgage will lessen the amount of equity you own in your home, so there will be less to pass on to your heirs. You are still responsible for taxes and insurance on your home. Be aware of unscrupulous lenders. They may charge extra fees that drive up the cost of the mortgage. Also, be aware of mortgages with adjustable rates (they may rise, costing you more in interest) and acceleration clauses that allow the lender to declare the loan due immediately.

Is a reverse mortgage available to anyone?

No. You must be at least 62 years old and have very little left to pay on your existing mortgage. You also must own your home free and clear.

SIDEBAR: The Department of Housing and Urban Development administers the federally insured Home Equity Conversion Mortgage (HECM) program. This program is insured by the federal government and tells lenders how much they can lend to you based on the value of your home and your age. The HECM limits the costs associated with the loan and guarantees that your lender will meet its obligations.

TIP: The AARP’s Web site offers extensive details on reverse mortgages in general and HECM requirements. Visit www.aarp.org/revmort for more information..

I am afraid the bank is going to foreclose on my home. Is there any way out of this?

Yes. Work with the bank that owns your mortgage. You may be able to have your monthly payments lowered or even possibly suspended for a short time. Another option is to refinance your home. This may result in lower monthly payments. But you will most likely have to pay some fees for the refinancing process, so be sure the amount of your monthly savings offsets these costs.

I have missed some mortgage payments because of unexpected medical bills, and now the bank is threatening to foreclose. What can I do?

Failure to pay your mortgage can happen for many reasons. Maybe your spouse recently died, and that income stream is gone. Increased medical bills and higher utility bills in the winter can also put a strain on your ability to pay your mortgage.

In some states, the creditor (the bank holding your mortgage) has to file a foreclosure action in the court where the property is located. You must answer the foreclosure complaint in court or risk losing your home.

TIP: Contact your local housing authority to find out more information on what to do if you are the subject of a foreclosure.

Other states have what is known as nonjudicial foreclosures. In these states, the creditor can simply advertise your property for sale. The onus is then on you to file a lawsuit in court to stop a sale.

TIP: Always pay your mortgage before other bills. Call your lender if you have any trouble making payments—most will work with you to find a solution rather than missing payments. Also, contact your local social services office to see what kind of assistance is available in your area. By lowering other costs, you will free up money to pay your mortgage.

The apartment manager says I do not need to sign any paperwork to rent an apartment, but I think I should. Who is right?

Although you can rent an apartment with just an oral agreement, it is much safer to sign a written lease agreement. The written document lists all of the landlord’s rights and duties as well as your rights and duties as a tenant.

TIP: Read your lease carefully. If you do not understand something, ask the landlord to clarify.

Do I have to give the landlord a security deposit?

Seniors on a tight budget may not want to pay money that does not go directly to their monthly overhead. But it is normal for a landlord to require one. The landlord is only trying to ensure that you will care for the property during the term of your lease. Generally, the amount of the security deposit cannot exceed more than 2 months’ rent.

SIDEBAR: The landlord must give you a written document listing any damages and the amount of the security deposit kept for those damages. He can only keep that portion of the security deposit that does not cover owed rent, damages and cleaning costs after you move out.

I am having trouble paying rent to my landlord each month. Are there any programs that can help me with this?

Yes. Renters over the age of 62 qualify for the federal government’s Rental Assistance Program. You may qualify at a lower age if you are blind or disabled. To qualify, you cannot exceed a certain maximum annual income. The program only requires that you pay (up to) 30 percent of your income towards your rent.

TIP: Contact your local Franchise Tax Board or Area Agency on Aging office for more information.

It is December and the utility company is going to shut my heat off for nonpayment. What can I do?

First, call your utility company and explain the situation to them. Many companies are willing to work with customers to find a satisfactory solution for both you and the company. For low-income seniors, the Energy Assistance Program may help. To qualify, you cannot exceed a maximum annual income. Call the National Energy Assistance Referral at 800.674.6327 or contact them at http://www.acf.hhs.gov/programs/ocs/liheap/ for help in applying for assistance.

Can I install modifications, such as grab-bars in my shower, without my landlord’s consent?

Usually you can make modifications that are necessary for your full enjoyment of the apartment. You normally must agree to return the property to its original condition at your own cost when you move out.