Reverse Mortgage: A Dignified Way For Retirees To Supplement Income And Take Care Of Expenses

Many Americans who are getting ready to retire only have the equity they've built up in their home. With a reverse mortgage, you can use this asset to create a stream of income needed for retirement or to take care of an unexpected financial need, which is usually related to health care costs for the elderly.

A reverse mortgage is not like a refinance, an equity loan, or a second loan on your home, and it comes with some risks.

So, what exactly is a reverse mortgage?

As the name suggests, the money flow is turned around. Instead of the homeowner paying the lender on a set schedule, the lender pays the homeowner, and no payments are due until the homeowner moves or dies.

How did reverse mortgage start?

In 1961, Roger Maris broke Babe Ruth's record for most home runs in a single season. However, like most things in life, a single act of kindness lasts longer and has a bigger impact than fame, but these acts of kindness are still unknown.

Nelson Haynes of Deering Savings & Loan in Portland, Maine, gave the first reverse mortgage loan to Nellie Young, the widow of his high school football coach. This is how reverse mortgage got started. This event was said to have been done out of kindness, and it set off a chain of events over the next forty years that helped retirees today.

Reverse mortgages help a lot of older people deal with money problems and, more importantly, give them a way to keep their independence and pride. And a record number of retired people are turning to this solution. The National Reverse Mortgage Lenders Association says that in 2004, lenders gave out a record 37,829 HECM loans. This was a 109 percent increase over the 18,079 loans that were given out the year before.

Why would a lender do that?

This idea may have started with an act of kindness, but lenders are not charities, and if they don't get a return on their investments, they won't be in business for long. In this case, the amount they lend you is based on the value of your home, how much they think it will go up in value, your age, and a number of other factors. When the homeowner moves or dies, they expect to get back the money they lent plus interest.

How do HECM Loans work?

The most common type of reverse mortgage loan that the U.S. Department of Housing and Urban Development has been giving out since 1989 is the federally insured home equity conversion mortgage (HECM).

Who cares about government health care?

When you borrow money through a traditional loan, you get the cash and the lender takes all the risk, which is secured by your home. But with a reverse mortgage, you might plan to get a payment every month over time. What happens if the lender dies and can't pay you back?

Because of this, the fact that the government backs the reverse mortgage adds another layer of safety and peace of mind. This peace of mind doesn't come for free. With HECMs, a homeowner can only borrow up to a certain amount.

What about the other ones?

This type of reverse mortgage is offered by a lot of banks, and its limits are usually higher than those of HEMD. But they are not insured by the federal government, and their processing costs can be much higher.

Anyone who wants to can get a reverse mortgage.

To be eligible for a reverse mortgage, you must:

1. You own your home outright or have a small mortgage balance that can be paid off with the money from the reverse loan at the closing.
2. Before getting a loan from HUD, you must also get consumer information from counselling sources that HUD has approved. You can call the Housing Counseling Clearinghouse at 1-800-569-4287 to get the name and phone number of a HUD-approved counselling agency and a list of FHA-approved lenders in your area.
3. You are at least 62 years old
4. You own your own home.
5. You live there.
6. It is also necessary to pay property taxes and stay out of bankruptcy.

What's the most I can borrow?

Traditional mortgage qualifications use a different set of formulas to figure out how much money you can borrow. The amount will depend on your age, the value of your home, the interest rates at the time, and the costs of the loan. People who are older and have homes that are worth more can borrow more when interest rates are low.

What kinds of houses can get a reverse mortgage?

Single-family homes, properties with two to four units, townhouses, detached homes, condo units, and some mobile homes are eligible. But there are some rules that apply to all of them. The most important is that you own them, live in them, and have kept them in good shape.

What about my descendants?

If you die while still owing money to the lender, your heirs will have to pay back the amount you borrowed, plus interest and other fees. Most of the time, this is done by selling the house. After you pay back the loan, whatever is left belongs to your heirs. The loan can't be given to someone else.

What are my options for getting money?

You can do five things:

1. Tenure: the same monthly payments as long as at least one borrower lives there and uses it as their main home.
2. Modified Tenure is a combination of a line of credit and monthly payments for as long as the borrower stays in the home.
3. Term: payments are made every month for a set number of months.
4. Modified Term is a mix of a line of credit and monthly payments for a set number of months that the borrower chooses.
5. Line of Credit: Payments can be made all at once or in instalments at times and amounts chosen by the borrower until the line of credit is used up.

What about scams that use a reverse mortgage?

Telemarketing is at the top of the list, just like most other scams aimed at older people. Never agree to anything over the phone, especially on the first call, and never give personal information over the phone, including financial information.

Getting information about reverse mortgages never costs anything. You can get this information for free. Ask for everything in writing, including an address and phone number, so you can check the information.