A Dignified Way For Retirees To Supplement
And Take Care Of Expenses
By Vishy Dadsetan
For many Americans reaching the retirement age, the equity build up in their
home is their only real asset. Reverse mortgage is a way to tap into this asset
and create a stream of income needed for retirement or take care of an
unexpected financial need that is usually related to health care costs in the
Reverse mortgage is not like a refinance, equity loan or a second loan on your
home and there are some pitfalls.
So what is a reverse mortgage? As the term implies the flow of money is
reversed. Instead of the homeowner paying the lender on a predetermined
schedule, the lender pays the homeowner and there aren't any payments due until
the home owner moves or dies. How did reverse mortgage start?
Roger Maris broke Babe Ruth's single-season home-run record in 1961 but like
most things in life, a single act of kindness has a much longer longevity and a
more widespread influence than that of fame and ironically these acts of
kindness remain obscure.
The history of reverse mortgage can be traced to Nelson Haynes of Deering
Savings & Loan (Portland, ME) who made the first reverse mortgage loan to Nellie
Young, the widow of his high school football coach. This event was reported to
be motivated by kindness and started a chain of events over the following forty
years to extend a helping hand to today's retirees.
Reverse mortgage helps many retirees cope with their financial difficulties and
more importantly,helps them to have a way to retain their independence and
dignity. And retirees are reaching for this solution in record numbers.
According to the National Reverse Mortgage Lenders Association in 2004, lenders
originated a record 37,829 HECM loans during the most recent federal fiscal year
- a 109 percent increase over the 18,079 loans closed the previous year.
Why would a lender do this?
The act of kindness may have started this idea but lenders are not charitable
organizations and they will not be in business long if they don't have a return
on their investments. In this case, they calculate the amount they lend based on
the value of your home, projected appreciation, your age and a number of other
factors. They expect to get paid the money they have lent plus the interest when
the homeowner moves or dies. What are HECM Loans?
Federally-insured home equity conversion mortgage (HECM) is the most common of
reverse mortgage loans that the U.S. Department of Housing and Urban Development
started offering in 1989.
Who cares about federal insurance?
In traditional loans, when you borrow the money, you have the cash in hand and
the lender has taken all the risk secured by your home. However in a reverse
mortgage, you may plan to receive a monthly payment over a period of time. What
will happen if the lender is no longer around to pay you?
This is why the federally insured reverse mortgage ads another dimension of
safety and peace of mind. This peace of mind also comes with a price tag. HECMs
limits the maximum loan amount a homeowner can borrow.
What about Non-HECM?
Many lending institutions offer this category of reverse mortgages and their
limits are usually higher than that of HEMD. However they are not federally
insured and they can have a much higher expense associated with their
Can any one qualify for a reverse mortgage?
The eligibility requirements for a reverse mortgage are:
* You are a homeowner
* You are 62 years of age or older
* You own your home outright, or have a low mortgage balance that can be
paid off at the closing with proceeds from the reverse loan
* You live in the home
* In case of HUD, you are also required to receive consumer information
from HUD-approved counseling sources prior to obtaining the loan. You can
contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the
name and telephone number of an HUD-approved counseling agency and a list of
FHA approved lenders within your area.
* Upkeep of property taxes and staying out of bankruptcy are also
How much money can I borrow?
The amount of money you can borrow is based on a different set of formulas than
the traditional mortgage qualifications. Your age, the value of your home, the
current interest rates, and the loan costs impact the amount. Older individuals
with more valuable homes in lower interest rate environment can borrow more.
What types of homes are eligible for reverse mortgages? Single family,
two-to-four unit properties, townhouses, detached homes, units in condominiums
and some manufactured homes are eligible. However various restrictions apply to
all with most significant being that you own them, live in them and have kept
them in reasonable condition.
What about my heirs?
If death occurs while you still owe money to the lender, your heirs are
obligated to pay the borrowed amount, plus interest and other fees, to the
lender. They usually do this by selling the house. Whatever remains after paying
the lender belongs to your heirs. The loan cannot be passed along.
What are my borrowing options?
You have five options:
* Tenure - equal monthly payments as long as at least one borrower lives
and continues to occupy the property as a principal residence.
* Term - equal monthly payments for a fixed period of months selected.
* Line of Credit - unscheduled payments or in installments, at times and
in amounts of borrower's choosing until the line of credit is exhausted.
* Modified Tenure - combination of line of credit with monthly payments
for as long as the borrower remains in the home.
* Modified Term - combination of line of credit with monthly payments
for a fixed period of months selected by the borrower.
What about reverse mortgage scams?
Like most other scams directed to senior citizens, telemarketing is on top of
the list. Never agree to anything over the phone, especially on the first call
and do not give personal information, financial or otherwise, over the phone.
There is never a cost associated with getting information on reverse mortgages.
This information is available for free. Ask for written copy of everything that
should include an address and a phone number so that you can confirm the data.
* DISCLAIMER: Vishy Dadsetan, FreeCreditReport.ws or My Favorite Shop, Inc. do
not endorse any reverse mortgage product or lender. This article and website
does not provide legal, accounting, or other professional services. If legal or
other expert assistance is required, the services of a competent professional
should be sought. Although Vishy Dadsetan has made every effort to ensure the
accuracy and completeness of the information contained in this site, it assumes
no responsibility for errors, omissions, inaccuracies, or inconsistencies.