Are you house rich and cash poor? Do you do if you want to stay in your home but can no longer afford the maintenance and upkeep necessary?
If you own your own home and are over the age of 62, you might want increase your monthly cash flow by tapping into your home equity through a reverse mortgage.
Reverse mortgages are like home equity loans with one major difference. Like a home equity loan, you borrow against the value of your home. And like a home equity loan, you can get the cash from a reverse mortgage in a lump sum or in dribs and drabs as you need it.
But here’s the dividing line: With a home equity loan, like any regular sort of mortgage, you start making monthly interest and principal payments as soon as you borrow the money. With a reverse mortgage, you pay back nothing on the loan until you move out of your home or sell it. The proceeds are used to pay off the amount you’ve borrowed, and the amount you owe is limited to the value of your home.
Fifteen years ago, no one had ever heard of a reverse mortgage. Since the early 1990s, more than 38,000 reverse mortgages have been closed. According to Housing and Urban Development (HUD) Secretary Andrew Cuomo, the number of new reverse mortgages has quadrupled in the past decade.
“One’s golden years are not nearly so golden if you can’t afford to repair the roof of the home you own, or find an apartment or assisted living (facility) to meet your needs,” Cuomo said.
A recent report, “No Place Like Home,” found that more seniors are interested in reverse mortgages. Other findings include: The median age of those using HUD reverse mortgages tends to be older (75 years of age) than the average elderly American homeowner (72). And, single female homeowners are nearly twice as likely to get a reverse mortgage than the average elderly American homeowner, which is not surprising given that women account for approximately 80 percent of the elderly poor.
According to the National Center for Home Equity Conversion more lenders are now offering reverse mortgages. But is it right for you?
If you’re committed to staying in your home, either because you don’t want to leave or feel you can’t afford an assisted living building, then a reverse mortgage might give you access to cash that can improve your quality of live and help pay to fix up your home.
The amount of cash you’ll receive depends on your age (the older you are the more cash you receive), where you live, and how much your home is worth. If you get a HUD-backed reverse mortgage, you’ll be limited to the FHA loan limits for your area. The Fannie Mae HomeKeeper reverse mortgage has a higher loan limit. Typically, you’ll receive approximately 50 percent (or less) of the value of your property.
For many homeowners, a home is their single largest asset. It’s what they’ve planned to leave their children. It’s okay to use up this asset to support yourself in your older age – after all, this may be the rainy day you’ve been saving for.
But you should understand ahead of time that reverse mortgages take a large bite out of a home’s equity. In many cases, there won’t be anything left for the senior’s heirs.
Reverse mortgages are limited to homeowners age 62 and older, who own their own home (or have just a tiny loan balance outstanding). Homeowners are also required to have reverse mortgage counseling, which runs through the various programs and explains all of the intricacies this complicated mortgage product.
Fortunately, there’s excellent reverse mortgage information available on the Internet.
Check out the National Center for Home Equity Conversion’s website. In addition to putting together the most comprehensive website on reverse mortgages, NCHEC executive director, Ken Scholen, has also written an excellent book on the subject. He also works for the American Association of Retired Persons (www.aarp.org), which also has good information on the subject.
Fannie Mae (www.homepath.com) offers good information on their HomeKeeper reverse mortgage. Through HUD’s website (www.HUD.gov), you can link to various reverse mortgage lenders.
Not everyone has a great experience with reverse mortgages. Linda’s grandmother had a reverse mortgage before she died. For a year after her death, the lender refused to acknowledge the estate attorney’s notification of her death and continued to impose monthly interest payments against the estate.
Although Linda said her grandmother’s estate is fighting these charges, every hour the lawyer spends on the fight eats up another bit of what’s left.
As with all legal transactions, be sure to have an attorney read your reverse mortgage loan application, and explain its consequences to you, before you sign it.
Oct. 17, 2003