June 7th, 2012 3:55 PM by Richard T. Cirelli
Understanding Reverse Mortgage Loans
Probably the least understood loan program of all is the Reverse Mortgage. Simply said, a Reverse Mortgage is a lifetime mortgage available to seniors aged 62 or older. The majority of reverse mortgage loans are insured under a federal HUD/FHA program.
It enables eligible homeowners to access a portion of their equity by taking either a lump sum, monthly payments over a specified term or over their lifetimes or some combination of both.
The homeowners' obligation to repay the loan is deferred until the owner (or survivor of two) dies; the home is sold; cease to live in the property; or breach the provisions of the mortgage (such as failure to maintain the property in good repair, pay property taxes, and keep the property insured against fire, etc.).
In a reverse mortgage loan, the home owner is under no obligation to make payments, but is free to do so without penalty.
The amount that a homeowner can receive is based on their age and the amount of equity in the home up to certain limits established by HUD. In the case of a husband and wife or any two owners, it based on the age of the youngest owner.
Title to the property remains in the name of the homeowner. If you choose to sell the home, the mortgage will be paid off in the same manner as any traditional mortgage.
Qualifying Is Easy
Qualifying for a Reverse Mortgage loan is much easier than a traditional mortgage. Basically, the borrower has to be at least 62 years of age. If there are two borrowers, the age is based on the younger of the two. Secondly, there must be enough equity in the property for the new reverse mortgage to pay off any existing liens.
Beyond age and equity, there aren’t any other factors that affect eligibility except for the suitability of the property itself. There are no income requirements and very little in the way of documentation to provide.
Benefits of a Reverse Mortgage Loan
· Tax-free funds for as long as you live in your home (borrower is still responsible or property tax and insurance payments)
· No loan repayment for as long as you live in your home
· No income or medical requirements
· Retain ownership of your home for life
· No restrictions on how you may use the funds. Use it for health care, daily living expenses, to pay other debt, travel, etc.
· Can be used to finance the purchase of a home
How to Begin:
· Find out how much you are qualified for based on age and equity. You can use this link: https://revmort.reversesoftonline.com/ReverseMortgage/jsp/extCalculator.jsf?compCde=RTCMTG000
· Schedule a telephone counseling session. Counseling is required by HUD to make sure the borrower understands the program and is not being taken advantage of.
· Call me to review your or your client’s circumstances so I can offer the best advice on the type of Reverse Mortgage to choose and how to structure the loan to suit the client’s needs.
Why The New Popularity of Reverse Mortgage Loans?
Reverse mortgages have gained in popularity in recent years. The average age of borrowers taking advantage of this program in now about 71 years. One in five borrowers is only 62 – 64 years of age.
For some, the rise in popularity of reverse mortgages is attributable to the tight economy with many older homeowners not being able to obtain traditional financing due to unemployment and higher debt and living expenses. Others have realized that peace of mind and quality of life is enhanced by being able to tap the equity now to travel or provide a source of funding for future medical care. And, the government backing of these loans by insuring that the borrower loan obligation cannot exceed the value of the property when it is sold has helped to add security and safety to the homeowner.