Nowadays, reverse mortgages are becoming popular among seniors
and retirees as a way to supplement their income and allow them
to live comfortably through their retirement. The number of
seniors nationwide who took reverse mortgages in 2004 doubled
from the previous year to more than 40,000, according to the US
Department of Housing and Urban Development, which insures the
loans.
Housing and aging specialists say seniors who have watched their
homes appreciate in value while their fixed incomes fail to keep
pace with rising costs are using money from reverse mortgages to
upgrade their lifestyles. Besides paying off their current
mortgages and other bills, taking care of necessary expenses
such as prescription drugs, health care, and home repairs,
seniors are using the equity from their homes to travel,
engaging in new hobbies and simply enjoy life a little more.
According to government studies, about half of the nation's 28
million senior homeowners who are 62 and older are eligible for
the program. In total, this represents more than one trillion
dollars in equity available to help seniors enjoy a happier and
healthier retirement.
What Is a Reverse Mortgage?
A reverse mortgage is sometimes easier to understand if you
compare it to a traditional "forward mortgage". A forward
mortgage, whether used to buy a new home or refinance an
existing mortgage, provides a lump sum at closing which creates
a debt against the home. The borrower satisfies that debt by
making equal monthly principle and interest payments over a
preset period of time. The total of the monthly payments is
typically two to three times the actual amount borrowed.
In a reverse mortgage, the homeowner is permitted to access a
certain amount of the equity in the home; withdrawing those
funds in any combination of ways and on any schedule they chose.
The borrower makes no monthly payment but rather repays the
principle and interest in a lump sum once the homeowner no
longer occupies the home because they have chosen to sell or
they have passed. All equity remaining in the home after
satisfying the mortgage belongs to the senior or their
designated heirs.
Who Qualifies?
To qualify for a reverse mortgage, you must be 62 years old or
more, you must have a sufficient amount of equity in your home
as determined by your age, and the home must be your primary
residence. There are no income, employment or credit
qualifications.
The Facts
The amount you receive depends on your age and the value of the
home. The older you are, the more money you'll get from the
reverse mortgage. The debt you owe will equals the total loan
advances plus the accrued interest and fees. You can draw your
money by receiving it in a lump sum, as lifetime monthly cash
advance, as a credit line type of account, or as a combination
of these methods.
All fees associated with the transaction are financed as part of
the loan and are paid as part of the final payoff. As a
protection to homeowner, HUD and FannieMae regulate the fees
that can be charged. This is also true of the interest rates and
loan amounts. No two lenders can ever offer higher or lower
interest rates or provide a higher or lower loan calculation.
Your reverse mortgage will become due and payable when the last
surviving mortgage holder permanently moves out, sells the home
or dies. The reverse mortgage has not limited your rights to
assign your home to whomever you chose upon your passing, and
after the loan is satisfied by your heirs, all remaining equity
is theirs to keep.
What are the Advantages of a Reverse Mortgage?
· Homeowners can pull needed cash from the equity of the home,
without incurring monthly expenses.
· Reverse mortgages guarantee that the homeowner can stay in the
home for as long as he or she lives, even if the outstanding
loan and interest should grow to exceed the property's value.
· HUD insures the loan, which guarantees there is no debt left
to your heirs or estate.
· Proceeds from the loan are tax-free, not considered income,
and therefore will not affect Medicare or Social Security.
Thousands of older Americans may no longer be house rich and
cash poor. Reverse mortgages provide a safe secure solution for
seniors to live out their life in the comfort of their own home
with the peace of mind and dignity they deserve.
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