2008 Reverse Mortgages

Submitted by Kim Lewis:

With the recent change of Mortgage opportunities, the Reverse Mortgage market is showing another option available to the senior segment of America. These loans are customarily used to allow the homeowner to convert a portion of the equity in their home to cash. They may need to use this cash for living expenses, or the borrower may need to defer the payment of their mortgage to lower monthly expense. The borrower remains in their house as long as possible, while the mortgage will not require any payments during this period. Repayment of the loan will occur when the borrower is no longer resident of the house, when it is sold, or refinanced by the borrower.

Reverse Mortgages offer financial freedom for many reasons:
A more comfortable retirement
Plans to travel
Help your grandchildren pay for college
Medical bills or other expenses
Home Improvements
Worry less about money

If you own your own home, as long as you live in it, you will maintain ownership, with no time limit. You will never make a payment on this loan, as long as you live in the home. You will never owe more than the value of your home at the time of loan approval. You can refinance whenever you want with no penalty. The cash you receive from this loan is tax-free.

To qualify for a Reverse Mortgage loan, you must own your own home, you must be 62 or older, and you should have a good amount of equity built up in your home. The homes that are eligible are single-family homes, condominiums, townhouses, manufactured homes, and 1-4 family owner-occupied residences. There are no medical or income requirements, no risk of default, and no restrictions on how you use your money.

You can choose payment options that suit you:
A lump sum upfront payment

Tenure- equal monthly payments

Term- equal monthly payments for a fixed period of months selected

Line of Credit- unscheduled payments or installments, at times and in amounts of
borrower's choosing until the line of credit is exhausted.

Modified Tenure- combination of line of credit with monthly payments for a fixed period
period of months selected by the borrower.

The amount of the loan is based on the appraised value of the house, the current interest rate, and the age of the borrower, or FHA mortgage limits in your area; whichever is less. The older the borrower and the longer you have owned the house, allows for a larger amount of cash available.

Surprisingly, the value of the house and the monthly payments are not adjusted during the course of the loan. The monthly payout does not stop, and the repayment of the loan is never more than the value at the time the loan is due. The “Tenure” payout seems to be the choice which allows continuous cash monthly as long as you reside in the home. The other payout options have limits on the time payout occurs. There is no obligation for the borrower to have the property re-appraised or a requirement of repair in future years.

The FHA Insured products are the most secure. These federally secured loans assure the borrower that changes in the home value, over the course of time, will not fluctuate the payout amount the borrower receives. Nearly 99% of the loans are based on adjustable rates of interest. The actuarial goal is to average 5.5% interest rate over the length of the loan. These changing rates are not directly affecting the borrower, as there are no payments required during the course of the loan.

But, be aware that as the loan ages, the interest will continue to accrue over time. When you no longer occupy your home as your principal residence, the loan becomes due. The amount due will be the total funds you received from the mortgage, the initial fees and closing costs financed as part of the loan, plus accrued interest. The repayment amount will never be more than the value of your home at the time the loan is due, for your protection. Should any equity remain after the debt is paid, this amount would become part of the estate for beneficiaries.

There are a few concerns you may want to consider:

The borrowers must be age 62 or older. If the qualifying spouse passes away, the younger spouse will not have the benefits of the loan. This means, the loan will become due. For security, you may want to wait until both are age eligible, before applying for the loan.

The fees charged for this type of loan could be up to 2x greater than normal loan closing costs, due to FHA Insurance and other factors. In most cases, the fees and costs are capped.

The equity in your home gradually disappears due to the accrued interest on the loan. So, as you receive payouts from this loan, you are charged interest on this obligation, which will be due at the end of the loan period.

The amount of cash you may draw from this loan may be greatly limited by your age, current interest rates, appraised value of your property, FHA mortgage limits in your area, and any current mortgage obligations outstanding on the property.

Many homeowners who have been conditioned to pay their debts, find that the obligation of this loan is uncomfortable for them. Those who have satisfied their original loan on their home, now have burdened their property with another debt.

The Federally insured reverse mortgages offer safeguards:
Advanced counseling to ensure that you understand fully about reverse mortgages and
your other options

Limits on the interest rate and origination fee

A ceiling on the repayment amount – it can never exceed the value of your home

Federally mandated consumer disclosures

The National Reverse Mortgage Lenders Association ( NRMLA) can provide information on where to find a Lender: Web site, http://www.reversemortgage.org. or call
NRMLA, 1-866-264-4466.