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A reverse mortgage is a special type of loan
used by older Americans to convert the equity in their homes into cash. The
money obtained through a reverse mortgage can provide seniors with the
financial security they need to fully enjoy their retirement years.
The reverse mortgage is aptly named because the
payment stream is "reversed." Instead of the borrower making monthly payments
to a lender, as with a regular first mortgage or home equity loan, a lender
makes payments to the borrower. While a reverse mortgage loan is outstanding,
the borrower owns the home and holds title to it and does not make any monthly
mortgage payments.
The money from a reverse mortgage can be used
for ANYTHING: daily living expenses; home repairs and home improvements;
medical bills and prescription drugs; pay-off of existing debts; education;
travel; long-term health care; prevention of foreclosure; and other needs. If
your home needs physical repairs (mandatory repairs) in order to qualify for a
reverse mortgage, a portion of the proceeds will be set aside for this
purpose.
To qualify for a reverse mortgage you must be
at least 62 and own your own home or condominium. There are no income or
medical requirements to qualify. You may be eligible for a reverse mortgage
even if you still owe money on a first or second mortgage. In fact, many senior
Americans get a reverse mortgage to pay off their first mortgage.
You can choose how to receive the money from a
reverse mortgage. The options are: all at once (lump sum); fixed monthly
payments (for up to life); a line of credit; or a combination of a line of
credit and monthly payments. The most popular option-chosen by more than 60
percent of borrowers-is the line of credit, which allows you to draw on the
loan proceeds at any time.
The size of the reverse mortgage that you can
get will depend on your age at the time you apply for the loan, the type of
reverse mortgage you choose, the value of your home, current interest rates,
and - sometimes - where you live. In general, the older you are and the more
valuable your home (and the less you owe on your home), the larger the reverse
mortgage can be.
The size of the reverse mortgage that you can
get will depend on your age at the time you apply for the loan, the type of
reverse mortgage you choose, the value of your home, current interest rates,
and - sometimes - where you live. In general, the older you are and the more
valuable your home (and the less you owe on your home), the larger the reverse
mortgage can be.
Before applying for a reverse mortgage, you
must first meet with a reverse mortgage counselor. You may, however, first
approach a reverse mortgage lender, who can provide you with the names of
approved counseling agencies in your area. A list of approved counseling
agencies nationwide is posted on the Web by the U.S. Department of Housing and
Urban Development. The counselor's job is to educate you about reverse
mortgages, to inform you about other alternative options available to you given
your situation, and to assist you in determining which particular reverse
mortgage product would best fit your needs if you elect to get a reverse
mortgage. In general, counseling sessions must be done face-to-face. However,
if you are seeking a Fannie Mae reverse mortgage you can do it by telephone. In
some areas, telephone counseling may be available for consumers seeking an FHA
reverse mortgage (Home Equity Conversion Mortgage).
No payments are due on a reverse mortgage while
it is outstanding. The loan becomes due and payable when the borrower ceases to
occupy their home as their principal residence. This can occur if the senior
(the last remaining spouse, in cases of couples) passes away, sells the home,
or permanently moves out of the home. The home does not have to be sold to pay
off the loan. The borrower (or their borrower's heirs) can instead pay off the
reverse mortgage and keep the home. In any event, the amount owed on the
reverse mortgage cannot exceed the value of the home at the time that the loan
must be repaid. Moreover, if the home is sold and the sale proceeds exceed the
amount owed on the reverse mortgage, the excess proceeds go to the borrower or
the borrower's estate.
Reverse mortgages are offered by banks,
thrifts, and other financial institutions. Four reverse mortgage products are
available to consumers in the U.S. at the present time. In the U.S., the most
popular reverse mortgage is the federally insured reverse mortgage, called the
FHA Home Equity Conversion Mortgage Program (HECM). The other major product is
the Home Keeper reverse mortgage, which was developed in the mid-1990s by
Fannie Mae, a private national mortgage company. A companion product is the
Home Keeper for Home Purchase mortgage, which is intended for home purchases.
One "jumbo" private reverse mortgage product is offered by Financial Freedom
Senior Funding Corp., of Irvine, CA. This is the Cash Account Plan. The HECM
and Home Keeper products are available in every state, while Financial
Freedom's product is offered in 21 states and the District of Columbia.
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