For many Americans reaching the retirement age, the equity build up in their home is their only real asset. Reverse mortgage is a way to tap into this asset and create a stream of income needed for retirement or take care of an unexpected financial need that is usually related to health care costs in the elderly.
Reverse mortgage is not like a refinance, equity loan or a second loan on your home and there are some pitfalls.
So what is a reverse mortgage?
As the term implies the flow of money is reversed. Instead of the homeowner
paying the lender on a predetermined schedule, the lender pays the homeowner and there arent any payments due until the home owner moves or dies.
How did reverse mortgage start?
Roger Maris broke Babe Ruths single-season home-run record in 1961 but like most things in life, a single act of kindness has a much longer longevity and a more widespread influence than that of fame and ironically these acts of
kindness remain obscure.
The history of reverse mortgage can be traced to Nelson Haynes of Deering
Savings & Loan (Portland, ME) who made the first reverse mortgage loan to Nellie
Young, the widow of his high school football coach. This event was reported to
be motivated by kindness and started a chain of events over the following forty
years to extend a helping hand to todays retirees.
Reverse mortgage helps many retirees cope with their financial difficulties
and more importantly have a way to retain their independence and dignity. And
retirees are reaching for this solution in record numbers. According to the
National Reverse Mortgage Lenders Association in 2004, lenders originated a
record 37,829 HECM loans during the most recent federal fiscal year - a 109
percent increase over the 18,079 loans closed the previous year.
Why would a lender do this?
The act of kindness may have started this idea but lenders are not charitable
organizations and they will not be in business long if they dont have a return
on their investments. In this case, they calculate the amount they lend based on
the value of your home, projected appreciation, your age and a number of other
factors. They expect to get paid the money they have lend plus the interest when
the homeowner moves or dies.
What are HECM Loans?
Federally-insured home equity conversion mortgage (HECM) is the most common
of reverse mortgage loans that the U.S. Department of Housing and Urban
Development started offering in 1989.
Who cares about federal insurance?
In traditional loans, when you borrow the money, you have the cash in hand
and the lender has taken all the risk secured by your home. However in a reverse
mortgage you may plan to receive a monthly payment over a period of time. What
will happen if the lender is no longer around to pay you?
This is why the federally insured reverse mortgage ads another dimension of
safety and peace of mind. This peace of mind also comes with a price tag. HECMs
limits the maximum loan amount a homeowner can borrow.
What about Non-HECM?
Many lending institutions offer this category of reverse mortgages and their
limits are usually higher than that of HEMD. However they are not federally
insured and they can have a much higher expense associated with their
processing.
Can any one qualify for a reverse mortgage?
The eligibility requirements for a reverse mortgage are:
You are a homeownerYou are 62 years of age or olderYou own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loanYou live in the homeIn case of HUD, you are also required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.Upkeep of property taxes and staying out of bankruptcy are also required.
How much money can I borrow?
The amount of money you can borrow is based on a different set of formulas than the traditional mortgage qualifications. Your age, the value of your home,
the current interest rates, the loan costs impact the amount. Older individuals
with more valuable homes in lower interest rate environment can borrow more.
What types of homes are eligible for reverse mortgages?
Single family, two-to-four unit properties, townhouses, detached homes, units
in condominiums and some manufactured homes are eligible. However various
restrictions apply to all with most significant being that you own them, live in
them and have kept them in reasonable condition.
What about my heirs?
If death occurs while you still owe money to the lender, your heirs are
obligated to pay the borrowed amount, plus interest and other fees, to the
lender. They usually do this by selling the house. Whatever remains after paying
the lender belongs to your heirs. The loan cannot be passed along.
What are my borrowing options?
You have five options:
- Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term - equal monthly payments for a fixed period of months selected.
- Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
- Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
What about reverse mortgage scams?
Like most other scams directed to senior citizens, telemarketing is on top of the list. Never agree to anything over the phone, especially on the first call
and do not give personal information, financial or otherwise, over the phone.
There is never a cost associated with getting information on reverse mortgages. This information is available for free. Ask for written copy of everything that should include and address and a phone number so that you can confirm the data.
DISCLAIMER: Vishy Dadsetan, FreeCreditReport.ws or My Favorite Shop, Inc. do not
endorse any reverse mortgage product or lender. This article and website does
not provide legal, accounting, or other professional services. If legal or other
expert assistance is required, the services of a competent professional should
be sought. Although Vishy Dadsetan has made every effort to ensure the accuracy
and completeness of the information contained in this site, it assumes no
responsibility for errors, omissions, inaccuracies, or inconsistencies.
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See Also:
Advantages and Disadvantages Of A Reverse Mortgage
Betty and John, are in their mid-seventies and are currently weighing the advantages and disadvantages of a reverse mortgage as a way of freeing up some cash. The couple purchased their home 45 years ago for about $14,000 since then home values have skyrocketed and recent single family homes in ...
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Who Could Benefit From A Reverse Mortgage?
What is a "Reverse Mortgage?"Also known as a Home Equity Conversion Mortgage (HECM)a reverse mortgage,is a popular way older homeowners (62+) can convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payments ...
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Reverse Mortgage: A Dignified Way for Retirees to Supplement Income and Take Care of Expenses
For many Americans reaching the retirement age, the equity build up in their home is their only real asset. Reverse mortgage is a way to tap into this asset and create a stream of income needed for retirement or take care of an unexpected financial need that is usually related to health care costs ...
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Reverse Mortgage Calculator
Most seniors who are interested in learning more about the Reverse Mortgage process will often use a Reverse Mortgage Calculator. Most online reverse mortgage calculators require the current value of the home in question, the total amount of any liens on the property, the ages of any individuals on ...
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