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September 2009

Reverse Mortgages and the Alternatives

Weighing Solutions for Potential Borrowers

The reverse mortgage is a relative newcomer to the mortgage industry. As companies increasingly promote this instrument in an effort to unlock the $3 trillion to $5 trillion of equity seniors have invested in their primary residences, financial advisors may find individuals inquiring about the advantages and disadvantage of reverse mortgages for themselves or their relatives. The focus below is on the disadvantages of, and alternatives to, reverse mortgages. For a detailed discussion of the U.S. Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) insured Home Equity Conversion Mortgages (HECM), see “Financial Planner's Guide to the FHA Insured Home Conversion Mortgage” by Douglas Skarr, in the Journal of Financial Planning, May 2008. In addition to HUD's FHA HECM reverse mortgages, other popular options include proprietary reverse mortgages offered by banks or mortgage companies. Advisors should be aware that as of December 31, 2008, the Fannie Mae Home Keeper mortgage is no longer available.

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