Reverse mortgage needs careful consideration

Homeownership can be a pain when the roof leaks or the sprinkler system breaks, but it also has advantages.

For example, many of us look at our homes as piggy banks, hoping that, over the long term, they will rise in value. And someday, if we're in dire financial straits, that value will be available for us to tap.

However, making a decision about when to do that, and how, can be challenging.

Such is the case for Shirley. She sent me an e-mail to say she is 66, divorced, working part time and owns her home "free and clear." Recently she has received information on reverse mortgages from an online company, and she is trying to decide whether it would be right for her to get such a mortgage.

By way of reminder, a reverse mortgage is a loan against your home that you don't have to pay back for as long as you live there, according to the AARP.org Web site. It can be paid to you all at once, or at times and in amounts that you choose. You must be at least 62 to get one, and the loan does have to be repaid in full, including interest and other charges, when the last living borrower dies, sells the home or permanently moves away.

Shirley wrote that she makes $900 to $1,000 a month at her job and receives about $500 a month in alimony. She takes Social Security, her only debt is for a car, and she will receive a small monthly pension if she works another year or so. She also has a small 401(k) and an IRA, and she started an annuity a couple of years ago that won't start paying off until she's 70.

"My house has been assessed for tax purposes at $215,000, although it has been assessed in the past upwards of $250,000," Shirley wrote. "So the first question is, will the value go back up in time for me to take advantage of it? My daughter is sure it will.

"At any rate, these people are telling me that it would be advantageous for me to get the reverse mortgage now, and either put the money in a line of credit account, which I can just leave there to collect interest, or take the lump sum, and do virtually the same thing if I don't want to use it now."

She also is considering selling her home and moving into a condo or smaller home in the next few years. "Would it be better to leave things as they are until I really need to do something? Or does it sound like a good idea to do it now? And what are the implications as far as interest if I take it now?"

All good questions, Shirley. For help with answers, I talked to Sharla Jessop and James Derrick of Salt Lake-based Smedley Financial Services.