Reverse Mortgage
A reverse mortgage is a loan against the equity in your home that does not have to be repaid for as long as you reside in your house. It allows you to turn the value of the equity in your home into cash without ever having to make monthly payments and you also retain the title to your home. The loan is due, typically, when the last surviving borrower passes away, sells the home, or permanently moves. A reverse mortgage may be a good tool for elderly homeowners who are struggling with their current mortgage payments, need additional funds for health care or other expenses related to aging, or for those who simply need additional income in order to enjoy their golden years.
In order to qualify for a reverse mortgage a homeowner must be at least 62 years old, owe less on the property than the cash available to them from the reverse mortgage, live in the property more than six months of the year, and maintain their property to meet FHA property standards. Currently, only certain types of properties are eligible for reverse mortgages. These types include single family homes, condominiums, one to four unit apartments (as long as one is occupied by the owner), and manufactured homes. Unlike most other types of loans reverse mortgages do not require proof of income or a credit check, as long as you do not have any delinquent federal debts.
The amount of money available to you when you receive a reverse mortgage depends on the value of your property, the amount of any debts that must be paid to clear the title on the property, the borrower’s age, and often the interest rate charged on the loan. Typically, the oldest borrowers with the greatest home values and smallest interest rates receive the most cash from a reverse mortgage. While there are many types of reverse mortgages on the market today, for most borrowers, the federally insured H.E.C.M. loan will offer the greatest cash at the smallest cost and without any risk to the borrower. Reverse mortgage payments to you from a H.E.C.M. reverse mortgage are guaranteed by the federal government, in the case that the lender goes out of business, and H.E.C.M.’s contain a non-recourse limit which means you can never owe more than the value of your home when the loan becomes due, regardless of the actual amount of money you receive or the outstanding balance of your loan.
Most reverse mortgages allow you to receive payments in a variety of ways. You can choose between an upfront lump sum, regular monthly payments, a credit line account that you can access at your discretion, or any combination of these methods. Reverse Mortgage borrowers are encouraged to consider a line of credit as a part of any payment plan to help deal with emergency expenses that are common as homeowners and their homes age.
While reverse mortgages can be a great financial tool for many older Americans they are not for everyone and typically are very costly when compared to other types of loans. They can also effect taxes, eligibility for some government programs, and the ability to leave the property (or its equity) to heirs when the last surviving borrower passes away. Because of the complicated nature of reverse mortgages, and concern over abuse of this product by lenders, all reverse mortgage borrowers are required to receive counseling from certified HUD housing counselors, like the ones available at CCMS. Counselors not only provide information on reverse mortgages, but are a great source of knowledge on additional programs for the elderly which may be able to help older homeowners reach their financial goals without the cost of a reverse mortgage.
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