Reverse Mortgages

Reverse Mortgages are available to seniors as a way of supplementing income and providing additional cash flow for living expenses. A reverse mortgage allows a senior homeowner to access the equity in her home as cash without an immediate repayment requirement. Instead of the homeowner making the mortgage payments, the lender pays the homeowner, and no payments are required until the homeowner no longer uses the home as her principal residence. The homeowner can choose to receive the mortgage proceeds as a lump sum, in monthly or quarterly payments, or even as a line-of-credit.

To be eligible for a reverse mortgage, a borrower must be at least 62 years old, own and live in the home, and have little or no existing debt on the property. Loan amounts and interest rates available depend on the value of the home and the age of the borrower. The older the borrower, and the more valuable the home, the more that may typically be borrowed.

Unlike a traditional second mortgage or home equity line of credit, with a reverse mortgage there is no requirement that the borrower have a certain income to debt ratio to qualify, and there are no monthly payments.

Even if the borrower lives longer than the term of the mortgage, she will not need to repay the loan as long as any borrower continues to live in the house and keeps the taxes and insurance current. And at the time repayment is due, if the house is worth less than the total amount due, the repayment is limited to a maximum of the value of the home.

The U.S. Department of Housing and Urban Development (HUD), which insures reverse mortages, recently adopted new rules increasing the loan limit to $417,000 for federally-insured reverse mortgages and establishing caps on the amount of fees lenders can charge. HUD also implemented the new “For Purchase” program, which allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from a reverse mortgage. This program will allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program will also enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs.

Reverse mortgages have long been a financial planning tool for older homeowners, and they are increasing in popularity. They are not for everyone, but for the right homeowner, they can provide the security of cash flow during retirement years.

For more information about Reverse Mortgages, visit HUD’s website at http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm.