Reverse Mortgage Senior Loans

According To Wikipedia:

reverse mortgage is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care).

In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender.

In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.

In December, 1987, the United States Congress passed the Housing and Community Development Act of 1987. Section 255 of this legislation incorporated the statutory requirements for the Home Equity Conversion Mortgage (HECM); known today as the FHA-Insured Reverse Mortgage, and in February, 1988, President Reagan signed the legislation into law.

Despite the rapid increase in the program’s acceptance, many older Americans are misinformed and are fearful of the process and terms of the loan. Compounding the problem, many well-meaning family members and financial advisors offer advice based on secondhand knowledge or anecdotal stories; however, their information often falls short of providing a complete and accurate understanding of the facts about reverse mortgages.

Reverse Mortgage Highlights:

  • Must be at least 62 years old
  • House must be primary residence
  • Mortgage must be either fully paid or have a small balance
  • No income or credit score requirements
  • Payment can be a lump-sum, monthly cash payout, line of credit held in reserve, or combination of all three
  • In many states can use proceeds for purchase of a new home

Reverse mortgages can be a good alternative for seniors struggling with monthly bills, yet sitting on a significant amount of equity in their homes.

How You Can Benefit From A Reverse Mortgage 

In years past, it was a widely held belief that a reverse mortgage was the “loan of last resort.” Recently, based on numerous published articles and university studies, it is clear that this characterization has changed, and that the FHA-insured reverse mortgage has become an important component in the retirement plan for seniors at all levels of net worth.  
Purchasing a home with a reverse mortgage – Many homeowners 62 years of age and older are living in homes that no longer meet their housing needs. By selling that home and using a portion of the proceeds from that sale as down payment, the homeowner can finance the purchase of a more suitable home and have no monthly mortgage payments.*  
Creating more cash flow – Many use a reverse mortgage to pay off an existing mortgage or other installment or revolving debt, or to create monthly income from the equity in their home. This will reduce expenses and increase their cash flow to use for other purposes.  
Retirement Planning – Wealth Managers, Financial Advisors, and Estate Planners are utilizing the reverse mortgage reserve line of credit in a wide range of strategies for their clients. Utilizing a reverse mortgage as a planning tool can defer or reduce draws against other income streams, provide an alternative cash flow during a down market, or offset the cost of living increases that could shorten a portfolio’s time horizon. Others see a reverse mortgage line of credit as an excellent hedge against the risks associated with longevity, a sequence of return, and taxes.  
*Homeowners must keep their property taxes paid and home insured.   This information was not produced by HUD or FHA and the information was not reviewed or approved by the Department or Government Agency  
**All loans are subject to underwriting or investor approval. Other restrictions may apply. This is not an offer of credit or a commitment to lend. Guidelines subject to change.

Frequently Asked Questions:

Q:  Can the lender take my home away if I out live the loan?

No. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current.

Another safeguard is that the borrower will never owe more than the value of the property at the time it is sold.

Q:  How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.

Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

Q: Will I still have an estate that I can leave to my heirs?

When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender.

The remaining equity in your home, if any, belongs to you or to your heirs.

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