Making the Most of Home Equity: Tips for Senior Citizens | Advisors to the Ultra-Affluent

For senior citizens living on fixed incomes, the need to replace a car or do substantial home repairs can disrupt finances. Major unplanned expenses caused by illness or disability can lead to financial disaster. Fortunately, many senior citizens are sitting on a major financial asset: the equity in their homes.”By taking the time to do some research and smart planning, senior citizens can transform their homes into sources of financial stability,” says Bob Armbruster, president of the National Association of Mortgage Brokers (NAMB).Publicity about predatory lenders targeting the elderly has made some senior citizens wary about borrowing against their home equity. NAMB offers some tips for senior citizens considering tapping into their home equity:

    * Consider a reverse mortgage. If you are at least 62 years old and owe
      little or nothing on your home, you can take out a reverse mortgage that
      will pay you a certain amount each month. The loan won't have to be
      repaid until the home is sold.

    * Understand the type of loan you're getting. There are many kinds of home
      equity loans: fixed rate, adjustable rate, lump sum, line of credit.
      Each has advantages and disadvantages, depending on your personal
      financial situation.

    * Borrow only as much as you can afford. Make sure the monthly payments on
      your loan fit within your budget. If you can't make the payments, you
      could lose your house.

    * Use a professional. Borrow only from a reputable mortgage broker or
      lender, preferably someone who is a CMC or CRMS.

    * Get a second opinion. Talk about the loan you are considering with a
      relative, friend or lawyer.  They might notice something you might have
      missed or not considered.

    * Don't use home equity for a quick financial fix. Don't rely on your home
      equity to get you out of financial trouble. There are other options
      available -- from credit counseling to even bankruptcy -- that don't put
      your home at risk.

    * Don't respond to door-to-door salesmen, telemarketers or internet ads.
      These are scam artists' favorite sales techniques. If you're considering
      borrowing against your home equity, ask friends or family about a
      reputable broker or lender who can help you.

    * Beware of borrowing through a home-improvement contractor. Contractors
      are generally interested in just one thing: making a quick sale. They're
      likely to charge you a higher interest rate and may even fail to follow
      through on the work they promise.

    * Don't give in to high-pressure salesmen. No reputable broker or lender
      will try to pressure you to take out a loan. Walk away from anyone
      pressuring you to sign off on a loan.

    * Don't take out any loan you don't fully understand or aren't completely
      comfortable with. It's your loan and your house. If you aren't happy
      with the loan terms, don't understand what you're being asked to sign or
      just have a bad feeling about it, just say no.