What is a Reverse Mortgage?

In 1989 the Federal Housing Administration tailored  a special type of loan exclusively for elder homeowners (62+) that allows you to safely tap into the equity in your home and receive cash, tax-free monthly income and/or a credit line with no repayment required as long as you occupy the home as a primary residence. You pay back nothing as long as you live in your home and there is no reduction in benefits when one spouse passes away.

Reasons why seniors take out a Reverse Mortgage.

1. Payoff a current mortgage on a home.
2. To supplement their retirement income. Many seniors have only Social Security and/or small pensions.
3. House needs repairs or updating.
4. Purchase long-term care insurance.
5. Payoff credit card debt or medical bills.
6. Obtain financial security with a line of credit.
7. Purchase a car.
8. Hire in-home health care.
9. Ability to remain in home for life.
10. Spouse in Nursing home.

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How safe is the Reverse Mortgage?

You retain full ownership of your home and the Reverse Mortgage is a lien just like a traditional mortgage. You can stay in your home as long as you want and you will still leave it to your heirs. If you are married and your spouse dies, you continue to receive payments as long as you live in your house. After you die, your estate pays back the loan by selling your house. The remaining equity goes to your heirs. You will still be responsible for property taxes, insurance and maintenance. The loan debt will not be passed on to your heirs. The loan is regulated by the Federal Government and monitored by industry associations such as NRMLA (National Reverse Mortgage Lenders Association).

Mortgage Insurance is provided by the Federal Housing Administration (FHA), and as a government program, does not generate a profit. It offers protection to both the bank and the borrower in the instance where a home is sold for less than what is still owed on the loan. The HECM insurance is charged in two parts, a Mortgage Insurance Premium (MIP) is paid at closing and a small amount is added to your interest rate that is charged on your rising loan balance. It is the assurance that the borrowers and the bank are protected by this insurance that allows the program to be available to consumers.

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How do you qualify?

You must be at least 62 years old, and, if you are married, your spouse must also be at least 62. You must own a single family home (HUD-approved condominiums and town houses are also acceptable) and you must live in your home. There are no income, credit or medical requirements in order to qualify. You also must complete a FHA approved counseling session. The home will be appraised and any repair requirements can, most of the time, be done after the loan closes.

How much money can you expect to receive?

The maximum amount of money you can borrow is based on 3 primary factors:

1. Your age
2. Current interest rates
3. The value of your home

The older you are, and the higher your home value, the more money you will be eligible to receive. All setup costs of the Reverse Mortgage can be included in the loan, keeping out-of-pocket expense to a minimum. The payments you receive are yours to spend any way you like.

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