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Attention Seniors: You Can Cash in on Your Homes but Still Live There

   

You bought your home for $30,000 in the 1960s and today it is worth $300,000. While you'd love to get your hands on that dough you also don't want to move. What to do?

Take out a reverse mortgage. Reverse mortgages have been around for several years and allow people to borrow against the equity in their homes. People can take the money in regular payments, as a lump sum or as a line of credit that can be tapped.

But until this year, reverse mortgages were mostly offered by full service retail stock brokers and weren't widely available. Now Fannie Mae, the largest supplier of mortgage funds, is backing reverse mortgages, which will encourage thousands of banks and other lenders to make them available.

Under Fannie Mae's guidelines, banks and other lenders will charge 1 percent of the home's assessed value plus another 2 percent in origination fees. To close the deal, homeowners will have to fork over another $1,500-$2,000. So, the proud owner of the $300,000 house would pay $10,500 or so plus a small monthly service fee.

The more you own of your house, the greater the amount you can borrow. And the more you agree to give up ownership to the lender in the future, the more you can borrow. For example, you can agree to give up 10 percent of the sale price of the home when you die and borrow a greater percentage of your home's equity.

Homeowners will be able to borrow up to $203,150 at rates pegged to the monthly CD rate.

Clearly these fees and rates add up, making reverse mortgages no bargain at all if the money is borrowed for only a few years. And if you were hoping to give your kids a nest egg by willing them the house, you should think of something else.

Bottom line: you really have to love the house you are in and need to borrow the money for a long time for reverse mortgages to make sense. In any case, do the math and comparison shop for the best rates.

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