The list of 7 reasons why you should consider a reverse mortgage
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What is a reverse mortgage
Definition of reverse mortgage
A reverse mortgage is a low-interest loan for senior homeowners that uses a home's equity as collateral. The loan amount is a percentage of the home's value determined by the age of the youngest homeowner. The loan does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 12 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not liable if the home sells for less than the balance of the reverse mortgage.
Eligibility for a
reverse mortgage (HECM)
To be eligible for a HUD reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62. You must own your home or have paid off approximately half of your mortgage balance. If you do have a mortgage balance, it can be paid off completely with the proceeds of the reverse mortgage loan at the closing (the moment which you sign the legal documents). There are no income or credit requirements for a reverse mortgage.
Eligible home types
Almost all home types are eligible. However, mobile homes must be built in the last 30 years, you must own the land, it must be on a permanent foundation, and it must meet an FHA inspection.
Difference between a reverse mortgage and a home equity loan
Generally a home equity loan, a second mortgage, or a home equity line of credit have strict requirements for income and creditworthiness. Also, with other traditional loans you must still make monthly payments to repay the loans. A reverse mortgage
has no income or credit requirements and instead of making monthly payments, you receive payments.
Story credit: Reverse Mortgage Guides www.reversemortgageguides.org
Seven reasons in favor of a reverse mortgage
House sitting on your money
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1. Revceive Tax-free Cash From The Equity In Your House
Is A Reverse Mortgage Tax-Free Income?
by Peter G. Miller
I saw a headline that got my attention:
“Reverse Mortgages – A Tax Free Income for Senior Citizens”
Whatever a reverse mortgage is, it isn’t tax-free income.
Income is something earned from land, labor, capital or entrepreneurial activity.
Money from a reverse mortgage is not income. Whether paid in a lump sum or over time it’s just the proceeds from a loan.
The reason cash from a reverse mortgage is “tax free” is merely because it’s not earned income. It is the principal balance of a loan, money that must ultimately be repaid — with interest. In fact, a reverse mortgage is no different than any other mortgage. For instance, if you finance your property with an FHA loan the principal balance is also not taxed.
There are various reasons why reverse mortgages may be attractive to given borrowers, but “tax-free income” isn’t one of them and can’t be one of them. If you want tax-free income, speak with a qualified investment advisor about bonds and other forms of investment instruments.
Story credit: Best Reverse Mortgage www.bestreversemortgage.com
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2. Reduce Your Monthly Expenses
Eliminate Debt Payments
For many homeowners, making monthly payments on a home equity loan, mortgage, car loan, or credit cards can be challenging. This is especially true when rising interest rates cause payments to go up - yet fixed retirement incomes remain the same. With a reverse mortgage, you will eliminate your mortgage and home equity loan payments. That’s because reverse mortgage proceeds must first be used to payoff any real estate secured loans, if they are present. Many then choose to payoff other debts as well with their reverse mortgage. A reverse mortgage can provide peace-of-mind, and an improved quality of life , by eliminating payments associated with:
Home equity loans
Other unsecured debts
Story credit: Reverse Mortgage Learning Center www.mandtreversemortgage.com
Kitchen improvement made with reverse mortgage funds
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3. Home Improvements
The FHA HECM reverse program can turn the built-up wealth in your home to cash without having to move or repay a loan each month. Financing home repairs or improvements is one of the many good uses for funds received from a HECM.
Top 10 Home Improvements for Seniors:
Grab bars in bathrooms
Levered faucets in kitchen sinks
Handrails on both sides of stairwells and on front and rear steps
Grab bars in showers; removal of any door threshold
Movable shower heads for those who must sit
Portable shower seats
A bathroom with a bath/shower as well as a bedroom on the first floor
Widened doors to accommodate wheelchairs
Ramps for those using walkers and wheelchairs
The above mentioned survey was part of a series of surveys done by AARP on senior housing studies. Based on telephone interviews of 2,000 persons aged 45 and over, it examines the opinions and behavior of mid-life and older Americans regarding their current and future housing situations.
Story credit: Approved Loan Today www.approvedloantoday.com
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4. Pay For Medical Expenses
A recent study by Fidelity Investments suggests that a 65-year-old couple that retired this year would need an average of $240,000 to cover their medical expenses. To calculate the average, Fidelity assumed that the couple is covered by Medicare and does not have employer-provided health insurance. They also assumed that the male partner would have a life expectancy of 17 years after retirement, and the female partner would have a life expectancy of 20 years.
This $240,000 estimate is a significant 6.7% increase from last year’s prediction. Of the medical expenses incurred, Fidelity estimates that:
41% will be for Medicare copayments, coinsurance deductibles, and excluded benefits
30% will be for out-of-pocket prescription drug expenses (not covered by Medicare drug benefit)
29% will be for Medicare Part B premiums and the Medicare prescription drug benefit
The medical expense projection is quite alarming, especially when you consider this subsequent study: According to the 2009 Retirement Confidence Survey (done by the Employee Benefit Research Institute), only 25% of retirees say they are very confident that they have saved enough money to cover their medical expenses during retirement. And only 13% of current workers felt that they would be able to save enough money by the time they retire to pay for medical expenses.
Story credit: RX Health Quotes rxhealthquotes.com
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5. Stop Foreclosure with a
A reverse mortgage can be a life-line that rescues the seniors in danger of losing their homes to foreclosure.
Reverse Mortgages are not short term, hard money, bridge or balloon loans normally associated with the type of loans people are forced to get to stop a foreclosure proceeding. But for seniors aged 62 and over, a reverse mortgage can be a life-line that rescues the seniors in danger of losing their homes to foreclosure. Many seniors are faced with rising living costs with which their fixed incomes do not keep pace. Rising costs of everything from food and gasoline to new medical expenses and even the rising costs associated with some of the adjustable rate mortgage programs that some seniors found themselves taking (either by too little explanation on the part of the originator or because they felt they had no other choice to keep their payments as low as possible), leaves many seniors with impossible decisions to make. Do they make the mortgage payment, or purchase the food and medicine they need to live for that month? These decisions have placed many seniors in peril as they near or enter foreclosure on their homes.
Now for the good news! A reverse mortgage requires no income or credit qualification. What this means is that if you are behind in your payments, even if the lender has filed a notice of default, you may still get a new reverse mortgage loan – and once you get it, you will never make another payment for life. You still have to meet the other reverse mortgage criteria, but if you do a reverse mortgage may be just the right thing for you or your loved ones to live payment free and worry free for life.
So what are the criteria to get a reverse mortgage? The youngest borrower has to be aged 62 or older for the HUD government-insured mortgage. Some programs even go down lower, but they also lend much less in relationship to the overall value of your home. Your property must meet minimum requirements as set forth by HUD and must be an acceptable property type. Single family residences, townhomes, modular homes on permanent foundations, condominiums are all generally acceptable but there may be additional requirements if you have anything other than a single family detached home so be sure to let your reverse mortgage lender know what type of property you have and if you are subject to a homeowner's association, if your zoning is not residential or if your property contains excess acreage. Your property has to be in reasonably well maintained condition with no major repairs needed (some repairs can have funds set aside to be completed). The only real credit requirement is that borrowers cannot be in default on a federal obligation or a federally insured loan. This means that if you are in default on an SBA loan, an FHA insured mortgage or other federal obligation, you would not be eligible for a reverse mortgage. Therefore, if the current mortgage that is delinquent is an FHA loan but has not had a notice of default filed yet, you can still get a reverse mortgage. Once the notice of default has been filed, the borrower would need to be able to bring in funds to cure the default before the reverse mortgage could proceed. Those funds could come from a family member, etc. Once the reverse mortgage was completed and funded, the borrower would never have to make another mortgage payment for life.
The borrower(s) must go through counseling, the loan has to be processed including property appraisal, all title issues including trusts, conservatorships, etc must be reviewed and approved so a reverse mortgage loan is not a 4 or 5 day loan. You need to realize that if you are going to use a reverse mortgage to stop a foreclosure it's a long term solution that must be dealt with in a timely manner without a lot of extra time for delay. Contact a reverse mortgage specialist today if you or a loved one find yourselves in this situation to see if a reverse mortgage
is the right solution for you.
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6. Increase Your Monthly Income
A reverse mortgage increases monthly disposable income by
Eliminating the monthly payment of an existing mortgage, or other debt. Providing a guaranteed monthly income for as long as at least one borrower remains in the
home or an even larger monthly income for the number of years you select.
Reverse mortgage facts
Reverse mortgage is a home equity line of credit with NO PAYMENT for as long as at least
one borrower lives in the home. The rate is very attractive and is regulated by the government.
To be eligible for the program borrowers must be 62 years of age, or older.
There are NO income or credit requirements to participate in the program.
The credit line amount depends on age and is 50% to 75% of the FHA appraised home value.
The proceeds must first be used to pay off any existing obligations on the home and to make
any FHA-required repairs. Otherwise, there is no restriction on the use of the funds.
The costs are strictly regulated by the government and can be financed by the program.
The proceeds are tax-free and DO NOT affect Social Security or Medicare payments.
The loan is insured by the US Government, protecting the owner’s right to live in the home.
Title to the property remains in the owner’s name and can generally be held in a trust.
The loan is a non-recourse loan, meaning that the loan obligation is limited to the fair market
value of the home, even if the actual loan balance became greater than the value of the home.
Reverse mortgage qualifications
Borrowers must be age 62 or older.
The residence must be the principal residence
The property must meet FHA requirements, as determined by an FHA appraisal and
inspection. Again, any required repairs can be paid for with reverse mortgage funds.
There can be no other obligation on the home, as the reverse mortgage must be a first
mortgage, but the reverse mortgage proceeds can be used to pay off other home obligations.
Borrowers must receive free third-party counseling from a HUD-approved counselor.
Story credit: Reverse Mortgage of Utah www.reversemortgagesofutah.com
Proud senior citizens with their granddaughter
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7. Improve Quality of Life
Reverse Mortgage Can Improve the Quality of Life for Many Senior Homeowners
If you said the words “reverse mortgage” a few years ago, and you may have gotten look that said, “Oh, I’m sorry, but you had to take one of those.” It was the product of last resort, the product of the destitute. Today, however, when you say those same words, you will often find yourself drawn into a conversation where those around you are anxious to hear about your experience.
reverse mortgages have arrived. They are enjoying much popularity, and not only among those who “need” the money. More and more, seniors are using reverse mortgages to finance the “wants’ in their retirement years. Indeed, as education about the real benefits of the reverse mortgage has spread, the informed senior as well as their advisors, have embraced this innovative product.
What is a reverse mortgage?
A reverse mortgage, is a loan product that gives homeowners age 62 and over the ability to tap a portion of the equity in their primary residence without having to sell their home or take on a new mortgage payment. Although the reverse mortgage has existed for many years (the first one done back in the 1961 in Portland, Maine), the structure and safeguards of the product today have made it an attractive way for many seniors to finance those golden years.
Bottom line a reverse mortgage can allow borrowers who qualify to use their equity and they get to live in the home without a monthly payment. The borrower controls how the funds are taken- either in a lump sum, monthly allowance, line of credit, or any combination other choices. So for example, if a senior wants to eliminate some debt, receive a monthly check, and have some funds in reserve for future needs, a reverse mortgage can satisfy all of these. If there is a mortgage or home equity loan/line on the property, it must be paid off when the reverse mortgage is taken. For many, if this mortgage payment “go away” is enough to make a big difference in their monthly budget. If a senior is currently making a home equity loan payment of $500.00 each month, that $500.00 increases cash flow and can now be put toward other monthly obligations or expenses such as prescription medications.
The amount of reverse mortgage funds available to a senior homeowner are based on several factors. First, the age of the youngest applicant is used. The minimum age is 62. In addition, the home value, as determined by an appraisal is taken into account. Also, the current interest rates (depending on which product is selected) is the used in the calculation, along with the current FHA ledning limits. These pieces of the puzzle will determine the amount of reverse mortgage proceeds the senior homeowner can take. If there is an existing mortgage or any type of lien, it must be paid in full at the time the reverse is taken. Other than that, the use of the funds is determined by you the homeowner. And the funds are *generally tax-free which makes the reverse mortgage a great option for many of today’s informed seniors.
How do most seniors use reverse mortgage funds for? The answer to that question is as varied as the borrowers themselves. Some common uses include medical bills, prescription medication expenses and co-pays, real estate taxes, upkeep on the property, and supplementing current monthly income. There are nearly 90% of seniors in our country relying on Social Security to meet some part for monthly expenses, proceeds from a reverse mortgage can meet a real need. Many seniors are using the reverse mortgage to actually enhance their quality of life during their retirement years.
More and more seniors are taking reverse mortgage proceeds and using these funds for travel, purchasing a motor home, gifts to children, funding grandchildrens’ college education, and charitable giving. Some are even putting this equity to use in the purchase of a vacation property or second home. Many are now using them to purchase homes. Home improvement or modifying your home is another use for reverse mortgage funds that has increases over time.
Certainly with the current economic climate reverse mortgages
will continue to be of tremendous value to our seniors.
Story credit: Seniors Right to Know www.seniorsrighttoknow.org
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