Reverse Mortgage Article

Peace of Mind with a Reverse Mortgage

It’s hard to live on $482 a month. So Wilma Ryan, 75, turned to her home equity to help supplement her monthly Social Security payments by using a HUD Federally-Insured Reverse Mortgage.

A Reverse Mortgage is a loan which enables homeowners 62 or older to borrower against the equity in their home without having to sell the home, give up title or take on new monthly mortgage payments. Loan proceeds can be used for any purpose. They can be taken out as a lump sum, fixed monthly payments, a line of credit, or a combination.

The Reverse Mortgage is insured by the U.S. Dept of Housing and Urban Development (HUD), Federal Housing Administration (FHA) and is repaid when the homeowner no longer occupies the home. The loan, commonly known as HECM, is funded by a lending institution such as a mortgage lender. To assist the homeowner in making an informed decision of whether this program meets their needs, they are required to receive counseling by a HUD-approved third party counselor.HECM counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM. Upon the completion of HECM counseling, the homeowner should be able to make an independent and informed decision of whether this product will meet their needs.

Borrower Requirements:

Ø Age 62 years of age or older

Ø Own your property (can have a current mortgage but will be paid off with the HECM)

Ø Occupy your property as primary residence

Ø Participation in a consumer information session by an approved counselor

Money Available Based On:

Ø Age of the youngest borrower

Ø Current interest rate

Ø Lesser of appraised value or the FHA insurance limit (county limit)

Example: Wilma is 75 and her home value is $150,000. She has no liens on title and her home is free and clear. Wilma would have $99,483 or $642 per month available to her with a Reverse Mortgage. (Amounts based on 2/25/2008 rates)

Generally, the more valuable your home is and the older you are, the more money you would have available in a Reverse Mortgage

Financial Requirements:

Ø No income or credit qualifications are required of the borrower

Ø There are no asset limitations on borrowers receiving HUD's Reverse Mortgage

Ø No repayment as long as the property is the primary residence

Ø Closing costs may be financed in the mortgage

Property Requirements:

Ø Single family home or 1-4 unit home with one unit occupied by the borrower

Ø HUD-approved condominiums

Ø Manufactured homes

Ø Meet FHA property standards and flood requirements

How the Reverse Mortgage Program Works:

Homeowners 62 and older who have either paid off their mortgage(s) or have a mortgage balance remaining, and are currently living in the home are eligible to participate in HUD's Reverse Mortgage program. Any unpaid mortgage balance or liens on title must be paid off in the Reverse Mortgage.Unlike ordinary home equity loans, a HUD Reverse Mortgage does not require repayment as long as the home is the borrower's principal residence. The #1 most common myth about Reverse Mortgages is that the lender owns your home. The homeowner retains full ownership of their home. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors. You can never owe more than your home's value.If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall, not the heirs or survivors. HUD's Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage.There are also no limits on the value of homes qualifying for a HUD Reverse Mortgage. The value of the home will be determined by an appraisal. However, the amount that may be borrowed is derived from the lower of the appraisal amount or the FHA county mortgage limit for the area, which varies from $200,160 to $362,790. The FHA limits usually increase each year. Reverse Mortgages can work effectively for seniors in the right situation, however they aren’t for everyone. If you plan to move in a year or two, you may want to explore other options. Home equity lines of credit may be less expensive and make more since if you are planning on selling your home in a couple of years, however it will give you another monthly payment. If you are living life financially comfortable and enjoying what life has to offer, then a Reverse Mortgage is probably not a good option.The bottom line in deciding whether a Reverse Mortgage is the right choice comes down to how the Reverse Mortgage will benefit you? In most cases the benefits are to stay in your own home, pay off all existing monthly debt, pay for in-home care, and to live life without the day-to-day financial pressures that are all to common. Peace of mind and quality of life are two benefits that are often overlooked and very difficult to calculate a “return on investment”, but are probably the two most important considerations in determining if the Reverse Mortgage is right thing to do. Larry McAnarney is a Reverse Mortgage Specialist at 1st Step Mortgage Group, Inc in Rockford, IL and a Certified Senior Advisor dedicated to educating seniors about Reverse Mortgage programs. He can be reached at 815-654-7100.