If you are a homeowner aged 62 or over and are looking for a way to improve
your financial situation, a reverse mortgage loan could be the right choice for
you.
These loans allow seniors who have paid off or nearly paid off their mortgages
to convert the equity in their homes into tax-free income — without having to
sell your home, give up the title, or take on a new mortgage payment.
The reverse mortgage is aptly named because the payment stream is "reversed."
Instead of making monthly payments to a lender, as with a regular mortgage, a
lender makes payments to you.
The funds from a reverse mortgage can be used for anything. Many seniors use the
money to supplement their social security, meet unexpected medical expenses or
make modifications to their home, such as widening halls or installing a ramp.
Reverse mortgages are also an option for baby boomers who realize as they near
retirement that they may not have enough income for a comfortable lifestyle.
The Federal Housing Administration (FHA) offers a reverse mortgage, called a
Home Equity Conversion Mortgage (HECM). HECM loans account for more than 90
percent of reverse mortgages. When an elderly homeowner takes out a HECM, unlike
a traditional home equity loan or second mortgage, the borrower is not required
to repay the loan until he or she no longer uses the home as a primary residence.
This reverse mortgage program has the added benefit of federal insurance. FHA
HECM loans also are tax-free and there is no personal liability for the loan
amount, even if the home loses value and the loan amount becomes more than the
market value of the home.
There are no income or medical requirements to qualify. You may be eligible for
a reverse mortgage even if you still owe money on an existing mortgage. However,
you must qualify for a large enough reverse mortgage to pay off the existing
loan entirely.
You can choose to receive the money from a reverse mortgage all at once as a
lump sum, fixed monthly payments (for up to life), a line of credit, or a
combination of these. The most popular option is the line of credit, which
allows you to draw on the loan proceeds at any time.
The amount of money you get from a reverse mortgage depends upon your age (or
age of youngest borrower in the case of couples), appraised home value, current
interest rates, and the lending limit in your area. In general, the older you
are and the more valuable your home (and the less you owe on your home), the
more money you can get.
For your protection, before applying for a reverse mortgage, you must first meet
with a counselor. The counselor’s job is to educate you about reverse mortgages,
answer your questions, and offer alternative options depending on your
situation. An FHA-approved counselor can help you decide whether a HECM is right
for you, or how to make the loan fit your needs.
A list of approved counseling agencies nationwide is posted online by the U.S.
Department of Housing and Urban Development. You can contact the Housing
Counseling Clearinghouse at 1-800-469-4287 to obtain the name and telephone
number of an FHA-approved counseling agency and a list of FHA-approved lenders
in your area.
The interest rates on HECMs loans are tied to the Treasury Bill Index, plus a
small margin. HECM mortgage limits vary by area, but in most cases do not exceed
$362,000. No monthly payments are due on a reverse mortgage while it is
outstanding. The loan is repaid when you cease to occupy your home as a
principal residence, whether you (the last remaining spouse, in cases of
couples) pass away, sell the home, or permanently move out. The amount owed can
never exceed the value of your home. Furthermore, if the home is sold and the
sales proceeds exceed the amount owed on the reverse mortgage, the excess money
goes to you or your estate.
For more information, senior homeowners can dial 1-800-CALL FHA or visit
http://www.FHA.gov .
Source: U.S. Department of Housing and Urban Development
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