Reverse Mortgages
Introduction
What is a reverse mortgage?
If you are over the age of 62 and
have paid off more than 35% of your mortgage balance, a reverse
mortgage will allow you to borrow against the equity in your home.
Instead of continuing to make mortgage payments, you get paid back
the money you already have in it - that's the "reverse" part.
You never have to repay the loan as long as you live in your home
and you can choose to receive the cash disbursements as monthly
income, a line of credit, or a lump sum. Also, because the FHA/HUD
program is backed by the US government, you will never owe more than
the value of your home — even if you receive monthly payments for
the next 20 years. Finally, you keep title to your property — it
stays part of your estate.
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Basics of Reverse Mortgages
1. Benefits
Your existing mortgage (if you have one) will be fully paid off. The disbursements are tax-free and can be spent however you like with no impact on Social Security or Medicare benefits.
• Continue to live in and own your
home
• Receive tax-free income from the cash disbursements
• Choose from monthly income, a line of credit, or a lump sum
• Repay the loan at any time with no penalty
• Owe nothing as long as you occupy your home
• No personal liability for repayment of the loan since it is
secured
solely by your home (you and your heirs are not personally liable)
• Pass the remaining equity in your home to your heirs
2. Eligibility
3. Cost
Interest rates are usually lower than the best rates on a traditional mortgage. All costs are packaged into the reverse mortgage so you never have out-of-pocket expenses.
4. Liability of Estate
5. Repayment
When you move out of the home, your estate has up to 12 months to repay the loan (usually by selling). If the home sells for more than the loan balance, the remaining equity passes to your heirs.
What
can a reverse mortgage be used for?
After you receive the tax-free funds
from your reverse mortgage, it is up to you to use them however you
please. Some retirees choose a reverse mortgage to have peace of
mind and others want to improve their quality of life.
Common Uses for a Reverse Mortgage (AARP and HUD survey)
Program Details
1.
Eligibility Requirements
There are no income,
employment, or credit requirements!
• All homeowners must be at least age
62 and occupy the property
as their primary residence.
• The home can have an outstanding mortgage (it will be paid off).
• Houses, town homes, condominium units, and some mobile homes
and PUDs are eligible. Most co-ops are eligible in New York.
• The home must meet minimum HUD property standards. If not,
sometimes repairs can be made after the closing of the reverse
mortgage.
2. Cash
Disbursement Options
You can choose to receive any combination of these options:
• Lump sum
o Cash is available immediately
• Term
o Equal monthly payments for a fixed number of months
• Tenure
o Equal monthly payments for as long as at least one homeowner
lives in the property
• Line of credit
o A credit line that you can draw upon whenever you wish
3. Loan Repayment
The loan is due when the last borrower no longer occupies the
property
as the principal residence. At this point, the loan may be repaid
either by
sale of the home or through other resources (such as savings or
applying
for a new traditional mortgage).
If your heirs choose to sell the home, they will keep the remainder
of the
income from the sale after the loan has been repaid. Your estate has
up
to 12 months to repay the loan. This means your heirs can take their
time
to get the best sale price.
How popular are reverse mortgages?
The program is growing at 49% annually with 107,000 loans issued in
2007. It was started by the FHA and signed by Ronald Reagan in 1988.
Reverse mortgages began to be popular in 1999 when policy changes
lowered interest rates and cut closing costs.
The Reverse Mortgage Process
Your counselor will explain the legal and financial obligations of a
reverse mortgage and help you explore alternatives. At the end of
the counseling session, you will receive the "Certificate of
Borrower Counseling" that's needed to begin an application.
Let the professionals at MetAmerica answer your questions and help you get started! Please call us at 1- 800-538-8701 today!