Reverse Mortgages

Is a Reverse Mortgage Right for you?

By Joni Douglas

Ads for reverse mortgages are all over the place, on television, in magazines, the internet and even in your mailbox. They are fast talking, slick ads designed to make you want one. You may be thinking….if it sounds too good to be true, it probably is. So you may be skeptical. Read up, then you be the judge and decide according to your own needs.

There are a few things you may be interested in as you explore the reverse mortgage options. We all know what HUD is, the U.S. Department of Housing and Urban Development. Under the administration of HUD, is FHA, which is the Federal Housing Authority. FHA implemented the first reverse mortgages with the Home Equity Conversion Mortgage program, HECM. This program enables seniors, over 62 years of age, to withdraw some of the equity in your home. By allowing seniors to access this equity, the HECM hopes to give older Americans greater financial security.

Seniors may use this program to supplement their monthly, make home improvements, pay off debt or even pay some unexpected medical expenses. The reasons why you might opt for a reverse mortgage are your own and no matter what your reasons are, they are not subject to approval like a consumer loan would be. To receive additional free information from the National Council on Aging about reverse mortgages, you may call 800 510-0301, or download a free booklet “Use Your Home to Stay at Home,” a guide for senior homeowners who may need help. Your home is most likely, your largest single investment, so it is important to have all the facts available if you are considering a reverse mortgage.

This type of loan lets you convert a portion of the equity in your home to cash. Unlike a traditional home equity loan or a second mortgage, repayment is not required until the borrower no longer lives in the home as their principal place of residence. Eligibility requirements are depended upon the amount of equity you have. Only seniors, 62 or older, are considered. You must own your home outright or have only a low mortgage balance left on your existing mortgage. Having a FHA insured home is not a requirement. This home must be your primary residence whether it is a single family home or a 1-4 unit home, where you are an occupant. HUD approved condominiums and manufactured homes are also eligible.

The differences between a reverse mortgage and a traditional second mortgage or home equity line of credit are crucial. Second mortgages and home equity loans are income approved and you are required to pay these loans back on a monthly basis. With a reverse mortgage your income level is not part of the equation. The amount you can borrow depends upon certain variables like your age, the current interest rate, and the appraised value of your home compared to the FHA’s mortgage limits for your area, whichever is less. Generally, the older you are and the more valuable your home is, the lower the interest and the more you can borrow. There are fees involved so read the fine print.

This is a loan but you do not have to make payments since the loan is not due until you move out or until you no longer use this home as your primary residence. It should be pointed out that all conventional payments like utilities, property taxes and insurance bills are still the responsibility of the homeowner. The security for many is the fact that with a FHA HECM reverse mortgage, you can not be forced to vacate the house for missed mortgage payments. As long as you or one of the borrowers remains in the house and keeps the taxes and insurance current, you do not need to repay the loan no matter how long you live in the home.

Your home is part of your estate and that will not change under a reverse mortgage.  The loan amount, the cash received, will have to be paid back by the estate, plus fees and interest.  All remaining equity in your home belongs to the heirs of your estate.

Options for receiving the cash from a reverse mortgage are varied and the choice is up to you.  Choices range from receiving monthly installment payments for a fixed period of time or for as long as you stay in the home.   Or, you may opt for a line of credit for unscheduled withdrawals or even choose combinations of the different options.  The choice is yours.

http://www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm

*FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HECM housing counselors are available for free or at very low cost, to provide information, counseling, and a free referral to a list of FHA-approved lenders. Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.

*You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287. You can use an online calculator like the one on the AARP website to get an idea of what you may be able to borrow.

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