by Archie M. Richards, Jr., CFP^®
August 20, 2001

Would you like to receive monthly income for life or have a substantial line of credit you can use immediately?

Are you at least 62 years old?

Do you have little or no mortgage balance on your home?

If your answers to all three questions are yes, a reverse mortgage may be just the ticket. A reverse mortgage is neither an investment nor an annuity policy; it's a loan secured by the value of your house - just the house. The lender cannot obtain repayment from your heirs or your other assets.

You may continue residing in the home for as long as you live. Only when you sell, permanently move out, or die are the proceeds of the house's sale used to repay the loan.

If the proceeds of the sale are greater than the loan balance, the excess is paid to you or your heirs. If the proceeds are less than the loan balance, the creditor swallows the loss. Nice, huh?

You can use the loan for education, home improvements, retirement support, medical expenses, long-term care, estate planning, a Harley-Davison - anything you please.

Oh yes, and your income is tax free.

The company decides what portion of your home's value it's willing to lend - usually a third to a half. You may withdraw the entire amount in a lump sum, take it in portions, receive a monthly income for life, or choose a combination of the latter two.

Sorry, you have to avoid bankruptcy. You must also pay property taxes, maintain the home and insure it, or the arrangement comes to an end. The servicing company checks periodically, to keep you on the straight and narrow.

Three companies supply reverse mortgages, as follows:

• Home Equity Conversion Mortgages. Issued by the Federal Housing Administration (FHA), HECMs are the most numerous reverse mortgages. But they're capped at $239,250.

• Home Keepers are issued by the Federal National Mortgage Association (Fannie Mae). These are capped at $275,000.

• Cash Accounts are offered by Financial Freedom Senior Funding Corporation. They're designed for homes of $500,000 and up. Other than the house's value, the loan amounts are unlimited. Any unused portion of a line of credit grows by 5 percent a year for up to nine years.

Financial Freedom sells all three of the above plans and is the largest originator of reverse mortgages in the United States. It requires professional counseling, to make sure that the client is getting the best deal.

You may reach Financial Freedom at 800-500-5150. Its website is www.ffsenior.com. The website for the National Reverse Mortgage Lender's Association is www.reversemortgage.org.

The reason you can borrow against your house is because creditors can ascertain that you truly own it. You and the creditor both have enforceable property rights. For decades after about 1880, many state courts in the United States failed to enforce the property rights of blacks - an important cause of the nation's current racial problems. Individual property rights lie at the foundation of western civilization.

But they're generally not available to the citizens of many third-world nations. Potential entrepreneurs, unable to borrow against the land and the other property they own, cannot start businesses, and the potential employees they can't hire therefore remain poverty stricken. U.S. foreign aid to any nation that fails to provide enforceable property rights is a waste of your hard-earned money.

Do not despair about the stock market. The worst economic and earnings news is hitting about now, five months or so after last March's panic. Pessimism is overdone. Short-term and long-term interest rates have come way down, the money supply is advancing nicely, and taxes will be dropping. Some technology stocks are selling for only one-times sales.

Oh sure, for current usage the broadband is overbuilt. But video in due course will flood the Internet, putting the current broadband to ample use.

By year-end, a new bull market will be well underway. If you have cash, buy. If you hold stocks, don't sell. For God's sake, don't sell!