The Basics on Reverse Mortgage

The HUD sponsored Reverse Mortgage, which is by far the most popular reverse mortgage loan, is commonly called the “Home Equity Conversion Mortgage”. It was created by an act of Congress in 1989 to help seniors enjoy a better quality of life, while remaining in their homes for the rest of their lives. Essentially, the U.S. Government supports and regulates a loan that was created to enhance your life. One of the most attractive features of this loan is that you do not have to pay it back for as long as you live in your home. Strict government regulation of this loan has made this program safe for seniors by eliminating lender abuses and unfair lending practices. You retain all your ownership rights including title to the property, the ability to refinance, sell or leave the home to your heirs. You can even make monthly payments if you wish to mitigate the erosion of your equity.

If you own a home and you need additional funds to supplement your income, to pay for healthcare, or to spend on any expenses or items that you desire, you should look into a reverse mortgage. Seniors today are living longer healthier lives, and are using reverse mortgages to pay for an entire array of products and services to improve their lifestyle.

Safety of the Program:
The reverse mortgage is sponsored, insured and vigilantly regulated by the US Department of Housing and Urban Development. The rules that govern this loan are enforced by very strict government regulation to protect seniors from any type of lender abuse. As an example, each borrower is required to receive counseling from a HUD approved counseling agency to insure the fact that all borrowers receive accurate, objective, 3rd party information about this loan.

Age:
Reverse mortgages were created to help seniors with their finances. Therefore, all borrowers must be at least 62 years of age. There is no way to avoid that requirement unless a younger property owner wishes to deed themselves off the property. This is an extreme, potentially dangerous measure and it is not a recommended practice. The consequences of this action need to be fully explored and understood before embarking on this route and it should not be done without the advice of trusted family members or trusted financial advisors.

Income, Assets and Credit Score:
There are no income, assets or credit scores requirements for eligibility into this program. A senior who might be disqualified from other loan programs due to income limitations or a tarnished credit rating, can obtain a reverse mortgage. Many seniors are finding relief from the threat of foreclosure by using a reverse mortgage to pay off their existing mortgage.

Health:
A senior’s health conditions is also not a qualification for reverse mortgage eligibility. Just as there are no health questions on other mortgage loan applications, there are no health questions on the reverse mortgage application. In fact, reverse mortgages are used extensively by seniors to pay for the full array of healthcare needs including costly home health care, costly medications and home modifications to make their home senior-safe.

Your Home’s Equity:
The amount of equity you have in your home will to a large extent determine the size of the reverse mortgage loan for which you are eligible. Generally, the more equity you have in your home, the higher the loan amount for which you will qualify.

Retaining Ownership:
Reverse mortgages operate like a regular mortgage. Obtaining a reverse mortgage does not mean that you are forfeiting your home to the US Government in exchange for a loan. You are NOT selling your home or giving up title to your home. It simply means you are using your home as collateral for a loan which will be repaid by you or your heirs at a future date. In all likelihood, the home’s equity will be the source of the repayment but the heirs have the right to repay the loan from other sources as well.

The Application Process is Easy:
Since there is no verification of income, credit, assets or health, the reverse mortgage application process is extremely streamlined. The borrower needs to sign the application forms, attend a phone counseling session, and allow an appraiser to inspect the property. The rest is handled by the mortgage company. In most cases you will have your money in 4 to 5 weeks from start to finish.

Spending the Money:
There are absolutely no restrictions on how you spend the money which means that you can spend the money in any way your heart desires. Alternatively, you may leave the reverse mortgage proceeds in the line of credit and draw on them whenever you wish. Many reverse mortgage borrowers have used the money to supplement their income, pay off an existing mortgage, fund retirement and long term care expenses, buy a new car, take a vacation, or for any other personal needs or desires.

Payback:
Three events can trigger the requirement to pay back the loan. When the house ceases to be your permanent residence because you move, sell the home or die, the loan has to be repaid. If at the repayment time the house is worth less than the loan balance, the government will pay to the lender the difference between the home’s value and the loan balance. If the home’s value is greater than the loan balance, the remaining home value goes to your estate.