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Your pocketbook Reverse mort- gages aren't for everyone - by Jason Alderman R everse mortgages let home- owners age 62 or older bor- row against their home equi- ty without having to make monthly payments (as with refinance loans). The loan needn't be repaid until you move out permanently, sell the property or die. In addition, seniors wishing to downsize or relocate may make a large down payment on a new home and then use a reverse mortgage to finance the rest. The vast majority of these mort- gages are made through the Federal Housing Administration's Home Equity Conversion Mortgage (HECM) program. Common fea- tures include: • All parties on the loan must be at least age 62. • The home (current or future) must be your principal residence. • You must own the home outright or be able to pay it off with pro- ceeds from the loan. • The allowable loan amount is based on your home's appraised value, your age, interest rate and type (fixed or variable), mortgage insurance and applicable fees. Generally, the older you are and the more valuable your home, the greater the available loan. • The repayment amount never exceeds the home's final sale value, so you (or your heirs) are never liable for more than you originally borrowed. • You can take the money as a lump sum, a line of credit, fixed monthly payments or any combination. Reverse mortgages can be very expensive. Lenders may charge a loan origination fee of up to $6,000. In addition, you must pay upfront and then ongoing mortgage insur- ance premiums (MIPs). HECM Standard loans have an upfront MIP of 2 percent of the home's value. HECM Saver loans have a far Have a high school senior? Start your student loan search now - by Jason Alderman L Jason Alderman is a senior director at Visa Inc. and runs the company's global financial literacy initiative, which includes the award-winning Practical Money Skills for Life and What's My Score? programs. lower 0.01 percent upfront MIP (although the allowable loan amount may be up to 18 percent less). Both versions also charge an additional 1.25 percent MIP of the outstanding balance annually, as well as a loan origination fee of up to $6,000 and various other charges. A few other potential downsides with reverse mortgages: • You are responsible for homeown- er's fees, property taxes, insurance and repairs for the life of the loan. If you don't pay them, you risk can- cellation or foreclosure. • They aren't cost-effective if you plan to move in a few years. • Some couples put only the older spouse on the loan in order to secure a higher balance, but this can backfire: If that person dies first, the survivor could be bound to pay off the loan – a real problem if the home's value is "underwater." • The longer you carry a reverse mortgage, the more your home equity – and thus, your estate – will decrease. Because reverse mortgages are so complicated, potential borrowers are required to consult a Depart- ment of Housing and Urban Development (HUD)-approved coun- selor before being allowed to apply. Before you even get to that stage, do your research. Helpful sites include those sponsored by the HUD ( ( ) and AARP ). oan application deadlines are right around the corner and you've got many decisions to make and documents to fill out. Your first step is start filling out the Free Application for Federal Student Aid (FAFSA) form. The FAFSA is required by virtually all colleges, universities and career schools for federal student aid, as well as for most aid from states and colleges. Although you can't yet finalize 2011 income-related infor- mation, once you start the process you can log-in anytime to update your file. Get a FAFSA from your school's guidance counselor or financial aid office, at , or by calling 1-800-4-FED-AID. The FAFSA filing deadline for federal loans for the 2011-2012 school year isn't until June 30, 2012, but many state and individual school deadlines fall months earlier. Many types of aid are available to help cover costs at four-year col- leges and universities, community colleges, and trade, career or tech- nical schools, including: • Hundreds of thousands of free scholarships are awarded each year. Visit for details. • Federal Pell Grants are needs- based grants given to low-income students to pursue post-secondary education. The maximum annual Pell Grant amount is $5,500. They need not be repaid. • Federal Supplemental Education Opportunity Grants for up to $4,000 a year are awarded to undergraduates with exceptional financial need. • The Federal Work-Study Program provides part-time jobs for undergraduate and graduate students with financial need, allow- ing them to earn money to help pay education expenses. • Direct Stafford Loans are low- interest federal loans that have no origination fee and come in two varieties: "Subsidized," which are needs-based and the government pays the yearly interest while stu- dents are enrolled; "Unsubsidized," which are not needs-based and stu- dents are responsible for interest that accrues while enrolled. • Low-interest Federal Perkins Loans are for students who demon- strate exceptional financial need. They are subsidized and have no origination or default fees. • Private education loans are offered by banks and other lenders to bridge the gap between govern- ment loans and actual education costs. They aren't government-guar- anteed or subsidized and typically carry higher interest rates, although you can borrow greater amounts. Details and rates vary widely. • Some colleges sponsor their own loans, often with lower inter- est rates than federal loans. Check each college's aid materials to see if they are available. • Federal Direct PLUS loans (Parent Loan for Undergraduate Students) allow parents to borrow for their children's college expens- es. Interest rates are fixed (although higher than Stafford loans) and there is an origination fee. • Private parent loans are offered by banks and other lenders, usually at higher interest rates than PLUS loans. They may also have an origi- nation fee. • Some colleges also offer their own loans to parents, usually at rates below PLUS loans. Check each college's aid materials to see if they're available. Check out and for complete explanations of the differ- ent types of grants/loans, calcula- tors and many other tools. 20 October 2011 DSEA ACTION! www.dsea.org www.fafsa.ed.gov www.finaid.org/scholarships www.federalstudent aid.ed.gov www.finaid.org www.hud.gov www.aarp.org