As Baby Boomers face retirement head on, Reverse Mortgages might possibly be the only game in town for many seniors, who want to avoid living in poverty. In the past few years they have been greatly modified, both to simplify the process and to provide added protection for Seniors.
In the past, Reverse Mortgages garnered some bad press (much of it justified) because they were complicated, expensive, and confusing. HUD stepped in and now nearly ALL Reverse Mortgages are simply FHA loans with some unique characteristics. As for safeguards, Reverse Mortgages are limited to around 50% Loan to Value which safeguards the seniors (and the estate’s) equity. Also, a Reverse Mortgage can’t even be taken unless the senior completes a personal interview with a HUD approved counselor who will make sure the senior understands what they are doing, and if all available options have been considered. At The Affiliates Group, we understand the importance and relevance of Reverse Mortgages in the coming years as Boomers begin to retire. A reverse mortgage enables older homeowners (62-plus) to convert part of the equity in their homes into tax-free* cash, without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, a lender makes payments to you. The homeowner does have a few important obligations with a reverse mortgage, including paying property taxes, insurance and any HOA dues, as well as maintaining normal and customary upkeep of the property. The funds you are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised home value, interest rates. In general, the older you are and the more valuable your home, the more money you receive.
- No Monthly Mortgage Payments: Instead of making monthly mortgage payments to a lender, as with a regular first mortgage or home equity loan, a lender may make payments to you. (borrower must remain current on property taxes, homeowner’s insurance and HOA dues as applicable)
- Non-Recourse: Reverse mortgages are “non-recourse” which means that no matter how high the loan balance grows, neither the borrower nor their heirs will ever owe more than the home’s market value.
- Stay in Your Home: The home does not have to be sold to pay off the loan. You (or your heirs) can pay off the reverse mortgage and keep the home. There are no prepayment penalties.
- Estate Planning: If the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you, your heirs or your estate.
- Available Cash: The amount of cash available from a reverse mortgage depends upon your age at the time you apply for the loan, current interest rates and the type of reverse mortgage you choose.
- Expand your Purchase Possibilities. A little known fact is that Reverse Mortgages can also be used as a “purchase loan,” in essence doubling the price that a senior could pay for the new residence without them having to make a house payment.
- Safety: Reverse mortgages are very safe since you do not give up homeownership and do not owe more than the value of property at the time the loan is repaid. Reverse mortgages allow you to withdraw money from your home equity, tax-free, with no requirement that it be repaid until you pass or no longer live in the home as a primary residence.