by Archie M. Richards, Jr., CFP^®
July 14, 2003

Are you getting along in age and would like to receive more income?

With a reverse mortgage, you can receive tax-free income for life. When you move or die, the company sells the home - only the home - and repays the loan from the proceeds. Your other assets can't be touched.

There's every reason to use your home for cash. Your children care a great deal about family mementoes - the picture of grandma and grandpa, Aunt Winnie's wedding ring, the china closet in the dining room. They also care about your investments. But your house? Naah. They have their own homes and jobs, and they're raising their children elsewhere.

Even if you're receiving sufficient income now, a reverse mortgage reduces your need for income from your investments. They can grow all the faster.

Let's say you're on the receiving end of a reverse mortgage. When you move or die, the house is sold. If the proceeds from the sale exceed the cost of repaying the loan, you (or your estate) get a check for the difference. Say you're receiving monthly income, but you have to move unexpectedly soon - in only five years. The proceeds of the house are far more than necessary to repay the loan. Bingo, you receive a substantial check.

Better yet, if the proceeds from the sale of the house are less than the cost of repaying the loan, the company eats the loss. You're never required to cough up other assets. The reverse mortgage is a non-recourse loan, secured only by the home. The company has no recourse against your other assets.

You may think, "I'm getting along in age. I don't want a loan hanging over my head."

Who can blame you? But with a reverse mortgage, nothing hangs over your head. You're receiving money from your house while you still live in it. The money comes in now; the house gets sold later. If you receive monthly income but break all records for longevity and live to be 140, your total income will exceed the home's value. That's the company's problem; it takes the loss.

Say the nation undergoes deflation and prices of real estate fall. The proceeds from the sale of the house don't cover the full value of the loan. That's the company's problem; it takes the loss.

You don't have to repay the loan during your life. You can remain in your house indefinitely. The company can't reach your other assets. Nothing hangs over your head.

You have choices as to how the money from the reverse mortgage is paid to you:

• Income for life, annually, quartly, or monthly.

• All up front. The company sends you a check for between a third and a half the house's appraised value.

• In chunks along the way.

• Some of the money up front and the rest as income for life.

The money you receive is tax free. Years ago, when you bought your first house, you paid no income tax on the amount borrowed. Borrowed money always comes in tax free, even if you receive it monthly for life.

You can use a reverse mortgage for any purpose. Pay the premiums on a long-term care policy. Use the money for estate planning purposes. Buy a Harley-Davidson and hit the road. Anything goes.

To obtain a reverse mortgage, you must be 62 years old and have little or no mortgage currently on your house. You must also keep the house in good condition and continue paying the property taxes. But you were going to do those things anyway.

Oh yes, you can't go bankrupt. You weren't planning to walk that path, were you?

My favorite source for reverse mortgages is Financial Freedom Senior Funding Corporation www.financialfreedom.com. A financial planner can help.

Turn your house into money. A reverse mortgage could be just the ticket.