Reverse Mortgages: A Good Deal or a Bad Deal for Seniors?
There is plenty of buzz about “reverse mortgages” on television, radio talk-shows, and on the street about this unique financial opportunity for senior citizens. America’s seniors, who have worked hard over the years to build and keep their homes, are intrigued but perhaps skeptical of this opportunity, feeling sometimes that there is a lack of unbiased information about reverse mortgages. It pays to be informed, and to know that there are plenty of sources of disinterested information and assistance for seniors who wanted to make their retirement years comfortable and worry-free.
A reverse mortgage is a loan against your home that you do not have to repay for as long as you live in your home. You can convert the value of your home into cash without having to sell it, move out, or make monthly payments to a loan company or bank.
You typically do not have to pay anything back until you pass away, sell your home or permanently move out of your home for more than twelve consecutive months. Senior homeowners, 62 years of age and older, are eligible for this type of loan. An appraisal of the property must be done before proceeding with the reverse mortgage.
With a reverse mortgage, you do not have to qualify on the basis of income. You remain the owner of your home just as in the case of ordinary home mortgages. With a reverse mortgage, you are still responsible for paying your property taxes and homeowner insurance, as well as making any necessary repairs and maintenance.
The amount of money that you can receive may vary. Generally speaking, the older the homeowner is, the more cash is received. Likewise, the greater the value of the home, more cash is available. Old debt, such as an original mortgage must be paid off before getting a reverse mortgage or it must be paid off with the money obtained from the reverse mortgage.
Like any other mortgage, reverse mortgages must be repaid. Repayment comes due and payable when the last surviving homeowner (e.g. a spouse) dies, sells the home, or permanently moves out of the home. Repayment may also become payable should the homeowner fail to pay taxes, fail to maintain the home, and fail to retain insurance.
The only reverse mortgage program that is insured by the Federal government is the Home Equity Conversion Mortgage (known as HECM). The US Department of Housing and Urban Development (HUD) and its agency, the Federal Housing Administration (FHA), tells HECM lenders how much they can lend, based on the homeowner’s age and home value. The program limits loan costs, while the FHA guarantees the lenders will meet their financial obligations.
The HECM program provides seniors with the greatest variety of choices of payment. The money that you get from the reverse mortgage can be paid to you:
� All at once in single lump sum of cash;
� In regular monthly cash advances;
âÂ?¢ As a “credit-line” account that allows you to decide when and how
much of the available cash is paid to you; or
� as a combination of the above.
Not all seniors may have an interest or a need for a reverse mortgage. Their alternatives include selling their home and moving away. Seniors who are considering moving out of their homes have to consider whether moving to a smaller home may be appropriate, or living in an assisted-living facility, for instance. Seniors who are looking for additional income should also inquire about public benefit such as SSI (Supplemental Security Income) available through the Social Security Administration, as well as Medicaid and Medicare prescription drug coverage. For more information, contact your local Area Agency on Aging and the Social Security Administration. On the Internet, search online for www.eldercare.gov www.ssa.gov or www.aarp.org
One of the safeguards built into the HECM reverse mortgage program is a requirement that all applicants are required to avail themselves of free counseling from a non-profit counseling agency. Most counties and communities have HUD-approved non-profit agencies that counsel first-time homebuyers and seniors citizens who are making decision about housing and mortgages. To find a HUD-approved counselor, or HECM lenders, call toll-free (800) 569-4287 or search online for www.hud.gov With the help and counseling from an impartial non-profit housing agency, seniors can make up their own minds whether a reverse mortgage is a good deal, or a bad deal. Be informed!
Martin Barillas is a state-certified Housing Counselor with Metro Housing Partnership of Flint, Michigan, which provides free counseling to families seeking help with budgeting and planning for a home purchase, as well as seniors seeking information about reverse mortgages .
