Dover's Definition of Reverse
Mortgages? "Probably the greatest financial
innovation and resource for senior consumers in decades. Studies
have shown that senior citizens are happier and their lives
extended when they're allowed to stay in their own homes.
Reverse mortgages also-in many cases-allow them to enjoy their
latter years with dignity, or access necessary medical care and
assistance on their terms."
- A Reverse Mortgage is a special
type of mortgage that enables senior homeowners to withdraw
the equity in their home, without having to qualify or make
payments, as long as the home is occupied as their primary
residence. It is a "reverse" mortgage as the
direction of payments is the opposite of a normal mortgage;
payments are made from the lender to the homeowner, rather
than from the homeowner to the lender.
-
- With a reverse mortgage, you
borrow against the value of your home, and receive loan
proceeds according the payment plan you select. When you sell
your home or vacate it for other reasons, the balance is due
and payable, usually from the sale of your home. Any proceeds
in excess of the amount owed the lender belong to you or your
estate.
Mandatory
Mortgage Counseling: A
mortgage counseling session is mandatory for all reverse mortgage
borrowers. This
counseling session is provided at no charge through a non-profit
agency and must be completed
before you can apply for the reverse mortgage. The counselor acts
as an unbiased third party, ensuring you have received impartial
information before you proceed with your reverse mortgage
application. If a senior borrower cannot travel or is more than 50
miles away from a counseling agency, phone counseling is
available.
Who's
eligible for a Reverse Mortgage? All
borrowers on title to the home must be at least 62 years old.
You've also gotta either own your home free and clear, or have a
low outstanding balance that can be paid off with an initial
draw from the reverse mortgage.
The home must be your principal
residence: Your home may be a single-family
dwelling or a two-to-four unit dwelling (as long as you occupy
one of the units). Units in condominium projects or
planned unit developments can also be eligible as long as the
project/development meets certain criteria.
You must also attend a counseling
session: Provided at no charge from an approved
counseling agency (family members are also encouraged to attend
these counseling sessions).
What are the
benefits of a reverse mortgage?
Tax-free funds for as long as you
live in your home.
No loan repayment for as long as you live
in your home.
No income, medical or credit requirements.
Retain ownership of your home for life; as
long as your maintain your home, use it as your primary
residence and pay insurance and taxes.
Choose a cash flow plan tailored to your
needs.
Retain your personal and financial
independence.
How much can I borrow? The
maximum amount you can borrow is based on a formula that factors
in the age of the youngest borrower, the interest rate and the
value of your home. As a rule of thumb, the older you are when
you take out a reverse mortgage, the more equity available to
you.
Is there more than one kind of
reverse mortgage? In Texas, there are two
types of reverse mortgages available:
- There's the Federal Housing Administration
(FHA) product called the Home Equity Conversion Mortgage (HECM)
and the...
- Fannie Mae product called the "Homekeeper"
Reverse Mortgage.
Most borrowers find the HECM will provide a higher level of
benefits. Other states have a jumbo product available for those
borrowers with higher-valued homes, but this product is not yet
available in Texas.
What payment plans are available? Senior
homeowners can receive their benefits in several different ways:
Lump Sum Option...Allows
a single payment of all funds available to you on the first
business day of the month following your loan closing.
Tenure Option...Allows
equal monthly payments for as long as you occupy your home as
your primary residence.
Modified Tenure
Option...Allows you to receive a portion of loan
proceeds as a lump sum and receive the rest in the form of equal
monthly payments as long as you occupy your home as your primary
residence.
What's the
difference between a reverse mortgage and a bank home equity
loan? With
a "traditional" home equity loan, you've gotta have
sufficient income and a decent credit history in order to qualify
for the loan...as well as be prepared to make monthly mortgage
payments. Reverse
Mortgages works very differently...
...because they pay you!
And are available regardless of your income or credit history.
The only credit issues that may affect a reverse mortgage are
unpaid federal tax liens and bankruptcy proceedings that have
not yet been discharged.
Can I be forced to sell or vacate
my home if the money I owe on the reverse mortgage exceeds the
value of my home? Not
as long as you:
- Continue to occupy the property as your primary residence
- Pay your taxes
- Pay your insurance and
- Maintain your property...
...you can't be forced to sell or vacate the property, even
if the balance on your reverse mortgage eventually exceeds the
value of your home!
Will my heirs owe anything to the reverse mortgage
lender if I die? Upon
your death, the Reverse Mortgage balance becomes due and payable.
Your heirs may repay the Reverse Mortgage by selling the home, or
by refinancing the reverse mortgage into a conventional mortgage
in their name.
If the loan balance exceeds the value of your property, your
heirs will owe no more than the value of the property. No
additional financial claims may be made against your heirs or
estate.
If my home appreciates in value during the reverse
mortgage term, who will be entitled to that money? You're
legally required to pay back to the lender only the outstanding
loan balance. Any money remaining after the mortgage is paid
belongs to you or, upon your death, to your estate/heirs.
Check out some recent "Ask Ben" columns addressing
developments on the Reverse Mortgage front:
April
17, 2003
May
1, 2003
