Reverse Mortgage: A Dignified Way For Retirees
To Supplement Income And Take Care Of Expenses
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 elderly.
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 processing.
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 required.
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.
Author-Bio: Vishy Dadsetan writes articles
that can actually help your clients. Articles that make sense. Articles
just like this one. For more information about the following refer to FreeCreditReport.ws
http://www.freecreditreport.ws/homemortgage/reverse-mortgage.html |
