How to free up 'dead money' in home equity

DEAR BOB: My husband and I, ages 74 and 77, respectively, live in our home worth about $900,000 for which we paid $125,000 in 1978. We have a remaining mortgage of $44,000 at 5.25 percent interest with $330 monthly payments. But we dislike sitting on all that "dead money" in our home equity. We've been investigating a reverse mortgage to pull out some of that money to either invest or help our daughter buy a house. However, we are not interested in additional monthly income. Is a reverse mortgage the way to go? --Darlene MacP.

DEAR DARLENE: My question for you and your husband is: "Are you in reasonably good health and do you plan to stay in your home at least five years?" If your answer is "yes," then a reverse mortgage could be ideal for your situation.

Purchase Bob Bruss reports online.

Sitting on about $850,000 of "dead money" (also called idle equity) must be frustrating. Giving your daughter the money to buy her house is like an "advance inheritance" if you are certain you will never need your home equity for personal use.

However, I do not recommend obtaining a reverse mortgage to use the cash for investments because chances of your earning at least as much as the money costs are very slim.

Because a senior-citizen reverse mortgage must be recorded as a first mortgage, $44,000 of the proceeds will be used to pay off your current first mortgage.

I suggest you consult a reverse mortgage originator who represents FHA, Fannie Mae and Financial Freedom Plan to compare their offerings. Due to your home's high market value, the Financial Freedom Plan will probably be best for your situation. You can find reputable reverse-mortgage lenders at www.reversemortgage.org.

(For more information on Bob Bruss publications, visit his
Real Estate Center).

Copyright 2006 Inman News