Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, November 22, 1993 TAG: 9311190389
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
A: Reverse mortgages - called Home Equity Conversion Mortgages - are designed to help people whose main asset is their home and who need extra cash to meet their expenses. For some people, the extra income from a reverse mortgage offers the only opportunity they have to continue living in the home.
Both owners must be age 62 or older, and the house must be paid for, or nearly so.
The advantage is the stream of steady monthly income. The size of that payment depends on the age at which you begin taking the equity, the interest rate on the loan and the appraised value of the house.
The disadvantage is that you will pay interest on your monthly payments, just as you did when you bought the house. This is because you are again borrowing money. You also must pay an origination fee, closing costs and a mortgage insurance premium, but this can come out of the equity rather than directly from your pocket.
When you vacate the house, it must be sold to satisfy the obligation. You or your estate will get to keep any excess equity in the home that you did not receive through the reverse mortgage.
But you can live in the home as long as you are able.
There is a federally-insured home equity conversion mortgage program available in Virginia. It is administered by Tidewater First Financial Group Inc. of Virginia Beach. You can request a brochure by calling toll-free, (800) 282-HECM (4326). You will receive counseling before joining the program.
You also can obtain information from the American Association of Retired Persons. Send a postcard to the AARP Home Equity Information Center, 1909 K Street, N.W., Washington, D.C. 20049. Ask for "Home Made Money."
Ginnie Mae considered low risk
Q: Is Ginnie Mae, which is part of the American Association of Retired Persons, a good investment. It's out of town. How solid is that?
A: The American Association of Retired Persons is a reputable seller of mutual funds, although some of its funds perform better than others.
All mutual funds are administered outside Western Virginia, but this is not an important consideration.
Money Magazine rates the AARP's GNMA & U.S. Treasury Fund as a very-low-risk investment. Its 1993 gain has been 5.6 percent. The three year annualized return was 10.6 percent.
Consult attorney to renew will
Q: I am fixing to renew my will, and I don't have any advice on what to do or how I might leave my house to my three children. They are all three married and doing fairly well financially.
How shall I go about this? I don't have that much, but I would like my three children to have my home. The will I have now says everything goes to the beneficiaries only, to all three or to the surviving ones of the three. The house is worth about $80,000 or more. My retirement is only about $10,000, stocks and bonds about $12,000 and life insurance about $10,000. In case I should die, I want everything (the house especially) to go to the children only, not to the in-laws.
A: You must follow the advice of the lawyer who draws your will, but it would be difficult to eliminate the in-laws from consideration. They would have a contingent interest in any property owned by a spouse.
Have you considered the problems you will be creating for your children by leaving each of them a one-third undivided interest in the house?
Which one of them, if any, is going to live there? How is that to be decided? Suppose one wants to sell and the others don't? What happens if one of your children is divorced and the ex-spouse claims a contingent interest? What if one of the three has financial problems and creditors attach his or her interest? What is the ramification of eliminating the grandchildren through a deceased child while ultimately giving an interest to your other grandchildren? Are you setting up the circumstances for a family feud?
You should consider providing for the sale of your home and splitting the money among your children. This is a much cleaner and more simple arrangement. They would probably welcome the money more than they would the house.
See a lawyer who specializes in wills and estates, state your intentions clearly and then be guided by the lawyer's advice. You should not try to write the will yourself if you want to cut out the in-laws. Your children probably set more value on your financial independence while you are alive than they put on an inheritance.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010. Or leave a recorded message by calling (703) 981-3434 and when asked for a mailbox number, press 66639 (MONEY), followed by the # symbol.
by CNB