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.
