At a time when most seniors should be enjoying a little time to themselves, many are facing an uncertain future filled with mounting medical costs, rising fuel bills, and shrinking pension checks.
One option to make life easier and eliminate at least one major expense is to do away with a monthly house payment. The good news is that there is a way to do this and still retain home ownership.
Through a reverse mortgage, homeowners borrow against the equity in their home, setting up disbursements in a variety of ways and deferring repayment until after they move from that home or die.
The mortgage amount available depends on the age of the homeowner, the equity built up in the home, and the current interest rate. The older the homeowner and the higher the appraised value of the home, the more money can be borrowed. In many cases homeowners can borrow as much as 50 percent of the value of the home, and unlike a traditional mortgage, there is no income requirement or credit check to worry about.
Reverse mortgage loans must first be used to pay off any existing mortgage balance, and then there are no restrictions on its use. Homeowners can use the loan for home improvements, medical expenses, and travel, or as a way to consolidate debt. Funds can be taken either in a lump sum, as a line of credit, as a monthly stipend or some combination.
A major advantage to reverse mortgages is that loan income typically does not affect other government benefits such as Social Security and Medicare, and it is also usually tax-exempt. As an added security most reverse mortgages are federally insured by the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD) or Fannie Mae.
If owners move from their home or die, the loan, plus interest and fees, must be repaid at that time. Depending on the loan amount, interest rates, and the life span of the loan, the home may have to be sold to repay the mortgage. Mortgage insurance provides for heirs in that they will not owe more than the house is worth, but it may take the entire sale price to cover the loan repayment.
Under some reverse mortgages, particularly the Home Equity Conversion Mortgage (HECM), homeowners can live in a nursing home or other medical facility for up to 12 months before the loan comes due.
When applying for a reverse mortgage, because of the complexity of the loan, borrowers are required to meet with a qualified financial advisor prior to submitting an application.
1. Applicants must be age 62 or older - if more than one person is listed on the deed as the homeowner, all must meet the age requirement
2. Applicants must own the home and establish it as their primary residence
3. Applicants must attend pre-application counseling - this can be done over the phone
1. Any existing mortgage must be paid off first
2. Debit consolidation
3. Medical bills
4. Home Health Care
5. Home improvements
1. Line of credit - the borrower pays interest only on the portion used with any of the payment options
2. Lump sum
3. Monthly payments - available as long as at least one owner resides in the home
4. Combination of payments
1. Borrowers retain ownership of their home
2. Loan disbursement does not affect other government benefits - such as Social Security and Medicare
3. Loan is tax-exempt - unless funds are invested in a taxable program
4. No monthly repayments
5. In most cases federally insured
6. No income or credit score requirements
1. Fees, mortgage insurance and other costs can quickly add up - these costs can be financed as part of the loan and out-of-pocket expenses can be kept at a minimum
2. Interest rates are adjustable and tied to the Treasury Index
3. Repayment at the end of the loan may require the sale of the home
One of the first agencies to create a reverse mortgage program was HUD. To learn more about this type of loan, visit the HUD Web site at http://www.hud.gov/. Go to "Information For" and click on "Senior Citizens." Links for information about Reverse Mortgages can be found under "Staying in Your Home," and advice on how to avoid unscrupulous lenders under "Protect Yourself."
HUD-approved lenders, listed either by state or city, can also be found on this site.