• Who Qualifies?
• How Much Money Is Available?
• What Is the Money Used For?
• Is It Safe?
• What Does a Reverse Mortgage Cost?
• Why Doesn’t Everyone Have a Reverse Mortgage?
• What is an HECM Saver?
• Will It Keep Me in My Home For Life ?
• Where Can I Get Additional Information?
What is a Reverse Mortgage?
A reverse mortgage is a mortgage loan with no monthly mortgage payments to make until the home is sold or the last borrower moves out or dies. Not having to make monthly mortgage payments can greatly improve cash flow and provide the cash needed for home improvements, medical or retirement expenses, to accomplish financial and estate planning objectives and even to buy a home. Many use the improved cash flow to be able to stay in the home longer than would otherwise have been possible. The Home Equity Conversion Mortgage or “HECM” is a reverse mortgage for homeowners age 62 and over that is insured by the Federal Housing Administration (FHA).
Who Qualifies?
Homeowners age 62 and over qualify.
How Much Money Is Available?
The amount you qualify for is based on the value of your home, the youngest borrower’s age and current interest rates. The older you are, the greater the amount. Typical amounts for a line of credit or lump sum range from about 50% to 70% of the appraised value of the home, but the amount is determined by an actuarial formula, not by a percent.
What Is the Money Used For?
The Bethlehem borrower in the PBS Report (see our home page) said she was “feeling the pinch” of living on a fixed income. By far and away, most borrowers use a reverse mortgage as an additional source of retirement income. A reverse mortgage can replace a conventional mortgage or home equity loan and eliminate mortgage payments. Whether used purely as new income or to eliminate a mortgage payment, a reverse mortgage will always improve cash flow.
Some take an initial advance to buy a car or to pay some bills. Others take an advance each year to pay real estate taxes and/or home owner insurance.
The National Council on Aging “Use Your Home to Stay at Home” program suggests using reverse mortgage proceeds for home modifications, ramps and other necessary expenses so you can stay in your home longer.
Financial advisors are finding reverse mortgages useful as part of a strategy to accomplish a financial objective such as to save taxes.
Finally, new since 2009 is use of a HECM reverse mortgage for home purchase. Homeowners age 62 and over can now use a reverse mortgage to finance the purchase of a new home. For example, a couple living in a $250,000 home can sell their home and use part of the proceeds as a down payment on a new home. A $125,000 down payment matched with a $125,000 reverse mortgage could result in a likely more accessible $250,000 new home and no more mortgage payments. The homeowners would retain the rest of the proceeds from the sale of their home for future use.
Is It Safe?
You cannot lose your home for failure to make mortgage payments, since there are no mortgage payments to make. FHA insurance guarantees that monthly income checks are for the life of the last surviving borrower in the home. (Of course, income checks stop when both borrowers have vacated the home, died, or the house has been sold.) You must continue to pay real estate taxes and homeowner insurance. Consumer protections include counseling by an FHA approved counseling agency before the lender can proceed.
What Does a Reverse Mortgage Cost?
Costs for a HECM reverse mortgage include normal closing costs such as title insurance, appraisal, credit report. Many have an up front FHA insurance premium; however the new “Saver” HECM loans do not. Many HECM loans also have an origination fee. In today’s market the origination fee (if any) varies depending on the program chosen. In recent months in 2011 we have seen total HECM closing costs on a $200,000 house range from under $4,000 to just over $10,000, depending on the program chosen. All costs, other than the appraisal, are typically financed as part of the loan. If there is a fee for reverse mortgage counseling, that also is typically financed as part of the loan.
Why Doesn’t Everyone Have a Reverse Mortgage?
A Reverse Mortgage is only appropriate for seniors who want to “Age in Place,” that is, remain in their home, and where it is the best option. A Reverse Mortgage may not be the best option, for example, if the additional cash available is not sufficient to accomplish the homeowner’s objectives.
Also, although a Reverse Mortgage is often used to pay off an existing mortgage and eliminate mortgage payments, it may not be possible to do a Reverse Mortgage if the total of existing liens is greater than the amount available from the Reverse Mortgage. Finally, many who could utilize a Reverse Mortgage are not yet aware of the program, and Reverse Mortgages are an option that was simply not available to prior generations.
What is a HECM Saver?
A “HECM Saver” is an FHA insured reverse mortgage that offers less money in exchange for lower closing costs and is appropriate for those who do not need the full amount of money available in the “Standard” program.
Will It Keep Me in My Home For Life ?
None of us know if we can stay in our home for life. How long we will live, future costs and whether our future income will be sufficient cannot be known, regardless of whether we have a reverse mortgage. A reverse mortgage has been described as “an additional pot of cash.”
A reverse mortgage will always improve cash flow, either by eliminating a mortgage payment, or by providing additional cash, possibly both. If you continue to pay your real estate taxes and homeowner insurance and keep the home in reasonable shape, you can stay in your home as long as you choose. A reverse mortgage has no term or end date.
Where Can I Get Additional Information?
See our Links on the sidebar of every page and on our News page.
