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Running on Equity : Mortgages: Three types of reverse loans--tenure, term and line of credit--allow longtime homeowners to get cash out of their investment.

ON THE HOUSE; Second of three articles on how to tap the equity in your home. Next: Doing some comparison shopping among lenders.


Nikki Grant has never been strapped for cash, even though she retired a decade ago.

The $900-a-month Social Security payments she collects after a career as a registered nurse--coupled with earnings from her modest investments--have allowed her to eat well, take some classes and enjoy an out-of-state trip now and then.

But until last year, the 78-year-old'sfinancial situation wasn't entirely comfortable, either.

Although Grant paid off the mortgage on her Long Beach home years ago, she didn't have enough money to travel as often as she'd like, help her kids and--in her own words--"do all the fun things that I've always wanted to do."

"I had all this equity tied up in my house, but I couldn't do anything with it," Grant said. "It was like having a bunch of money in the bank, but not being able to touch it."

All that changed last August, when Grant's daughter persuaded her to take out a reverse mortgage, a special type of loan for house-rich but cash-poor homeowners.

Grant opted for a "tenure" loan, one of the three basic types of reverse mortgages. Now she gets an extra $989 each month to supplement her retirement income, and the money won't have to be paid back until she either sells her home or dies.

She also has a $50,000 reserve account that she can tap at any time.

The money has allowed Grant to fix up her house, pay for an operation to improve her eyesight and buy gifts for her children and grandchildren. And next year she plans to take an around-the-world cruise on a luxury ocean liner.

"Everything is just wonderful now," she said. "I'm not just 'getting by' anymore--my reverse mortgage has given me a whole new life."

Relatively few older homeowners--between 10,000 and 20,000 across the nation--have taken out these offbeat loans. But that number is certain to grow: More lenders are getting into the business each year, and the federal government has launched a program aimed at making as many as 25,000 more reverse mortgages over the next few years.

Meantime, the stigma that was once attached to "remortgaging" a home is starting to disappear--and that too is boosting the popularity of reverse mortgages.

"Older people aren't as hung up on leaving their homes to their kids as they used to be, and that opens up the possibility of tapping their equity," said Jon Pynoos, a professor at USC's Andrus School of Gerontology.

"Even older people who are pretty comfortable are starting to look at their equity as a means of enjoying their life in retirement more. A reverse mortgage can let them do things that they otherwise couldn't do."

There are three basic types of reverse mortgages. The most common type is the "tenure" loan: It guarantees that you'll continue receiving a preset monthly stipend for as long as you live in the house. If you die, the money will be repaid by your estate.

A "term" loan, on the other hand, provides you with monthly stipends only for a specified period of time--usually between five and 12 years. When the term is up, the stipends stop and the money must usually be repaid--along with the interest that has accrued--in a lump sum.

The third type of reverse mortgage basically works like a line of credit: You simply draw down the money whenever you need it.

Exactly how much you'll be able to borrow under any of the three plans will be determined primarily by your age, the value of your home and the amount of equity you have in it.

Your age is a factor because reverse-mortgage lenders use actuarial tables when setting their monthly stipends.

Statistics show that the typical American woman lives to about 79, while the typical male lives to about 72. So you would be entitled to a much higher monthly stipend at 70 than at 62.

"The formula is pretty simple: The older you are, the more money you can get each month," said Ken Schloen, president of the nonprofit National Center for Home Equity Conversion in Marshall, Minn.

'That's why reverse mortgages appeal most to people in their 70s or 80s instead of people in their 60s. A lot of people in their 60s look at how expensive these loans can be and the paltry stipends they'd get, and they just say, 'Forget about it.' "

The value of your house and the amount of equity you have in it are factors because your home will be used to collateralize the reverse-mortgage loan.

Understandably, a lender wouldn't want to take the chance of giving you, say, $200,000 over the life of the loan if your house is worth only $100,000.

Deciding which of the three types of loans to choose depends on a variety of factors. One key consideration is the length of time you plan to stay in the home. Another is the amount of money you want to receive each month.

"If you want to supplement your retirement income for as long as you stay in the house, you'll probably want to choose a tenure loan that guarantees monthly payments until you move out or die," said Bronwyn Belling, a housing expert at the American Assn. of Retired Persons.

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