Reverse Mortgages
A reverse mortgage is a mortgage available for senior citizens
that allows homeowners to draw upon the equity of their homes as
a source of income. It allows homeowners age 62 and over to remain
in their homes while using their built-up equity for any purpose.
What reverse mortgage programs are offered?
Federally-insured reverse mortgages are the most widely offered
under a program known as the Home Equity Conversion Mortgage (HECM)
program. Counseling is required before homeowners can apply for
a HECM loan. This counseling will enable a homeowner to decide
whether a reverse mortgage is really the best answer to their cash-flow
problems. There are other available options to utilize the home
equity that the homeowner may want to investigate.
Who is eligible for a reverse mortgage?
All borrowers must be at least 62 years of age, own, and occupy
their home. Mobile homes and cooperatives are not eligible properties.
There are no income or other asset limitations to participate in
the HECM program.
How does a reverse mortgage work?
Reverse mortgage borrowers still live in their own homes and are
responsible for property taxes, insurance and upkeep on the homes.
Most reverse mortgage loans require no repayment for as long as
the borrower lives in the home, but they must be repaid in full,
including interest and other charges, when the last living borrower
dies, sells the home, or moves away.
When the borrower no longer lives in the home, the home is sold.
If the house is sold for more than is owed, the extra money will
become part of the estate. If it sells for less than the amount
owed, the estate heirs are not responsible for the shortfall.Federal
insurance reimburses the lender.
How much money am I eligible to receive?
The amount of money a homeowner can receive is based upon the
value of the home, the borrower's age and life expectancy, the
loan's interest rate, the location of the home and the lender's
policies. The older the person is and the more valuable the home,
the more money he or she can receive. The specific amount of cash
that may be borrowed varies from one reverse mortgage product to
another. Some products (such as HECM) offer a credit line that
grows larger over time until you use it all. Other credit lines
do not grow larger, or do so at a lower rate for a shorter time.
How is the money disbursed?
The loan can be paid as a monthly income, a lump-sum withdrawal,
a line of credit, or a combination. The line of credit is the most
flexible. It allows the homeowner to write checks on the equity
whenever it is needed, up to the limit of the loan.
Which plan is best?
Which plan - if any - works best depends on the age of any co-owners,
the home's value and location, current interest rates, specific
needs and preferences, and other choices of the homeowner. One
plan may provide a lot more cash at a much lower cost than another,
but for a different consumer, the other plan might be a much better
deal. You need to get objective, independent counseling from a
qualified housing counselor.
The above information should be understood to be a general
discussion of the subject matter and DOES NOT constitute
a legal opinion about the situation. For further information
please consult a qualified attorney.
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