The concept of Reverse Mortgages conjures a variety of emotions based on personal experience and publicity. Some outlets have painted a Reverse Mortgage loan as expensive and a poor choice for a homeowner, but much of this is based on old programs and misinformation. A recent study by Marttila Strategies, a Boston public opinion research firm, reported that the majority of those who take advantage of the equity in their home through a Reverse Mortgage are happy with their loan.
First, it’s important to define just what a Reverse Mortgage is. As opposed to a traditional “forward” mortgage that requires monthly payments by the borrower, a Reverse Mortgage pays the equity in the home to the borrower. There is no subsequent repayment required until the borrower dies, moves out of the home, or fails to maintain payment of taxes and insurance. Borrowers must be at least 62 years old with equity in their home. No credit check is required, nor are there debt-to-income ratios to worry about. You continue to own the home (not the mortgage company) and the proceeds from the loan are not counted as additional income.
Almost all Reverse Mortgages are government insured programs called Home Equity Conversion Mortgages (HECM) through HUD/FHA. Proceeds from the mortgage may be taken in a lump sum, through a line of credit, monthly income, or a combination of these methods. Reverse Mortgages are generally more expensive than a traditional mortgage, but the costs may be financed in the loan with little or no expense to the borrower. Before an application can be taken for a Reverse Mortgage, borrowers are required to consult with a HUD-approved counselor to ensure they understand the programs.
There are no restrictions on the use of the proceeds from the loan. Need to supplement your monthly income? Spread the proceeds out over a period of time with a monthly stipend. Tired of paying a monthly mortgage payment? Use the proceeds to pay off your mortgage. Expensive home repairs/upgrades? Travel in your future? Maybe you’re looking to purchase a second home. Or, maybe you would like to downsize but not use up all of the proceeds from the sale of your current home. There are a myriad of possibilities with a Reverse Mortgage.
So, what’s the catch? There really is none, but there are a few requirements. All borrowers must be at least 62 years old to qualify. Secondly, payments on property taxes and insurance on the home must be paid as due, and the property must be kept in good repair. You will never owe more than the home is worth – if the loan balance is greater than the value of the home when it is sold, you simply walk away. However, if an heir or family member would like to retain the property, they would need to pay the balance on the loan. Conversely, though, if the balance is less than the equity in the home, the equity proceeds would be paid to you or your heirs.
With the uncertainty in social security and the financial markets, it’s nice to know that there is an additional source of funds available to help live our older years to the fullest.
Lois Holmes-Raible and Charlene Turner are the Reverse Mortgage team at Tidewater Home Funding. For more information, please visit tidewaterhomefunding.com.