Reverse Mortgage Explained
In the early 1980â€™s, the AARP began lobbying congress for a program that would allow senior homeowners to safely turn some of their home equity into additional cash. The AARP was asking for a safe mortgage program which would insure homeowners they would never be forced out of their homes, and that would also relieve them of the burden of monthly payments normally associated with a home mortgage while safeguarding the equity position of the homeowners or their estates.
In 1989 Congress gave birth to HUDâ€™s Reverse Mortgage Program â€“ a Federally insured, Government sponsored program specifically designed for, and only available to senior homeowners over the age of 62.
What is a Reverse Mortgage?
While a Reverse Mortgage is a lien against your home like any other mortgage, thatâ€™s pretty much where the similarities end. A Reverse Mortgage is a special, Government sponsored program designed specifically for, and only for - homeowners over the age of 62. Unlike a traditional mortgage, there are no monthly payments to make. There are also no credit, asset or means requirements to qualify for the mortgage.
- Since there are no monthly payments, the mortgage balance increases over time as interest and other nominal costs are assessed to the loan. This growing balance however, never has to be re-paid until the homeowner leaves the home and is often offset by increasing home value. Homeowners continue to own their homes and can never be forced to move out or sell due to a mortgage balance or a payment they can no longer afford.
- A Reverse Mortgage is a non-recourse loan. This means that no assets other than the home can be attached to pay off the mortgage. The mortgage balance can never exceed the value of the home regardless of what it could conceivably grow to. Should the value of the mortgage be less than that of the home when the senior leaves, either the homeowner or the estate receive the remaining equity. Taken together, these features offer what is often considered a â€œWin-Winâ€ situation.
- Interest Rates and the costs of the most common Reverse Mortgages are set by the Government. Because of this, â€œshopping for ratesâ€ between different banks or brokers becomes a non-issue. The homeowners are free to use the broker or bank that they feel most comfortable with.
The mortgage balance only becomes due when the homeowner sells the home, vacates it for more than 12 months, or when the last surviving borrower passes away. On sale, it is satisfied at closing, as would be any other mortgage. Heirs have the options of paying off the amount due and keeping the home, or of simply selling the home. A surviving Co-borrower (spouse) may continue to remain in the home.
Who Qualifies for a Reverse Mortgage?
Qualification for a Reverse Mortgage is pretty simple.
- The age of the homeowners must be age 62 or greater.
- The home must be the primary residence. You have to live there.
- There can be no other liens on the home. Current liens or mortgages can and must be satisfied from the proceeds available from the Reverse Mortgage. If current liens are greater than the amount available from the Reverse Mortgage, homeowners will not qualify.
Hw does the homeowner access the cash?
Homeowners access the cash in one of four ways. They are:
- Lump Sum â€“ a single payment of cash.
- A Line of Credit â€“ You can use or pay back as you like. Unlike a normal Equity Line or Loan, the Reverse Mortgage Line of Credit is available until the homeowner leaves the home with no monthly payments due. The available line unused, also increases.
- Monthly payments, either term or tenure.
- Any combination of the above.
Monthly Tenure payments continue for as long as the homeowners or surviving homeowner resides in the home, even if the mortgage balance eventually exceeds the value of the home itself.
How much money can the homeowner get?
The amount the homeowner can receive from a Reverse Mortgage is based on three factors. They are: The Age of the youngest homeowner, Current Interest Rates, the location and Appraise Value of the home.
Essay provided by Category Expert: Frank Miller, Senior Funding Group, Long Island, New York. (631) 312-3569.
Disclaimer: All copyright and responsibility of essay information is the responsibility of author.