Choices for These Great Later Years
Popularity of the Reverse Mortgage is growing as our society ages while staying healthy and extending years of active living.
Unlike the traditional mortgage we have all worked to retire, there is now a loan provided through FHA with no monthly payments payable. FHA is the organization that gave us the 30 year fixed mortgage that enabled us to purchase our first houses in our earlier years.
The loan is insured by FHA while allowing choices of a single distribution of money, a lump sum less than the allowable loan and/or monthly distributions of money to subsidize social security and retirement funds that don't quite reach demands of living.
The loan retires any mortgage existing on property and ends the mortgage payments that might now be payable with the remainder available to the borrower(s).
The loan is recovered from the borrower(s) estate by sale of the property or refinance by heirs when the last of two spouses vacates the property permanently. "Permanently" is interpreted as not residing in the house for at least 24 hours in a year's time. Using the property for that 24 hour period commences another year. Time to sell the property is generous and extendable dependent on circumstances of the sale.
Additionally, there are no credit requirements. The loan is secured exclusive by the real estate that is a principal residence.
Peter Bell, President of the National Reverse Mortgage Lenders Association has been quoted regarding some common misconception.
Initially, title stays with the owners as with any other mortgage. The lender simply has a lien on the property. If a borrower were to "hit a jackpot" the loan could be repaid at the borrower's convenience like any other mortgage.
Amount available to borrow is dependent on age, (minimum age of the youngest spouse must be 62) interest rate at the time of the application, and the value of the home. Different areas are rated differently.
The loan is structured so that the borrower(s) can never owe more than the value of the property (unless the entire county went to that quoted place, in a handbasket). Even if the values dropped, the borrower would not be assessed a deficit.
The funds from the loan are not taxable and have no effect on Social Security or Medicare. They may alter eligibility for other government programs such as Medicaid.
Drawbacks noted for the loan are the upfront costs that are part of any mortgage. Loan costs typically run 5%. There are monthly servicing fees dependent on the choices of loan payouts.
Federally insured loans are limited by area and value of the property with limits ranging between $172,632 in rural areas to $312,895 in metropolitan areas.
Primary requirement is that the borrowers meet with a counselor to have a clear understanding of the loan and conditions before receiving the loan.