Reverse Mortgages: Understanding the BasicsThursday, September 11, 2008
According to the U.S. Department of Housing and Urban Development, the number of reverse mortgage loans is projected to exceed a record 110,000 this year, more than three times the number of 2004. The growth in the senior population is expected to outpace all other age-levels by 2011, and the number of consumers using the equity in their homes to provide additional income is also expected to continue rising.
“Reverse mortgages can provide needed additional funds for senior citizens on fixed incomes,” said Sue Hunt, housing counseling manager for Consumer Credit Counseling Service of Greater Atlanta (CCCS). “But they aren’t for everyone. Understanding the benefits, the risks and the costs involved is an important first step when considering a reverse mortgage.”
CCCS of Greater Atlanta is one of the leading nonprofit counseling agencies in the United States with housing counselors who are certified in reverse mortgage counseling. The agency helps homeowners by providing objective information about reverse mortgages, including the advantages and disadvantages, so a homeowner can decide if this loan is right for them.
Does getting a reverse mortgage mean I will lose my home?
A reverse mortgage is a loan that allows you to convert the equity in your home into tax-free income without having to sell your home, give up the title, or take on a new or additional monthly payment. Instead of making mortgage payments each month, you can receive income in the form of a lump sum, or monthly payments As long as you live in the home, pay the property taxes, insurance, and keep it in good condition, you won’t lose the home
How is a reverse mortgage different that a conventional mortgage?
With a conventional mortgage, the equity rises and the debt falls as you make regular payments and the value of your home appreciates. When you have a reverse mortgage, the debt rises and equity falls as you take the money out of the home, make no payments, and interest accrues on the amount owed.
Who can qualify for a reverse mortgage?
To be eligible for most reverse mortgages, you must be 62 years of age or older, have paid off your mortgage or have only a small balance remaining, and your home must be your principle residence.
How much money can I expect to receive?
The amount you can borrow depends on three things: your age, the appraised value and equity in your home, and the interest rate on the loan at the time of origination. If you are participating in a government program, your loan is also subject to the lending limit in your area. In general, homeowners who are older and who have a great deal of equity in their home are able to borrow the most money.
How are payments made to me?
Borrowers can choose to get their money in a lump sum all at once, as a monthly cash advance, or as a line of credit that allows you to decide when and how much to use. Some borrowers opt for a combination of these payment methods.
How can the money be used?
The proceeds from a reverse mortgage can be used at the borrower’s discretion. While many choose reverse mortgages to provide supplemental income to cover basic living expenses, funds can also be used for home renovations, healthcare expenses, to pay off existing debts, or for major purchases such as automobiles or vacations.
How is the reverse mortgage repaid? Can heirs inherit my home?
No payments need to be made while you occupy the home as your principal residence. The loan is repaid when the homeowner passes away, sells the home, or moves out. The reverse mortgage, which includes the amount borrowed, the accrued interest, the mortgage insurance premiums accrued, service fees, and any other financed fees will be repaid upon the sale of the home and any excess proceeds would go to you or your estate.
Heirs can inherit the home, but must pay off the reverse mortgage within an agreed upon period of time (usually 12 months) after the death of the homeowner.
Is a reverse mortgage right for me?
Getting a reverse mortgage may be right for you if you have a regular need for additional funds to cover basic living expenses; if you live on a fixed income and your only asset is the equity in your home; or if you do not plan to leave your home to children or other beneficiaries.
A reverse mortgage can be an expensive way to borrow money and is not the best answer for everyone. Homeowners need to educate themselves and understand all the benefits and risks of a reverse mortgage.
Consumer Credit Counseling Service is certified by the U.S. Department of Housing and Urban Development as a comprehensive housing counseling agency and can provide information and counseling for consumers considering reverse mortgages. To learn more, visit www.CredAbility.org and click on “I need information on Reverse Mortgages” in the “Get Help Now” menu. There you will find a step-by-step guide to evaluating a reverse mortgage as well as helpful resources from organizations such as AARP. You can also get more information or make an appointment with a housing counselor by emailing housing@CredAbility.org, or call us at our special toll-free housing number, 866.616.3716.
About CCCS
Consumer Credit Counseling Service of Greater Atlanta is a 501(c)3 nonprofit community-service agency that provides confidential budget counseling, money management education, debt management programs, bankruptcy counseling and education, and comprehensive housing counseling. The agency serves nearly 400,000 consumers, who are primarily from low- and moderate-income households, in all 50 states.
Consumers can speak to counselors in English and Spanish 24 hours a day, 365 days a year, by phone at 800.251.2227, and also access the agency’s web sites, www.CredAbility.org and www.CredAbility.org/es where live-chat counselors are available around the clock. The agency’s web site also provides free interactive seminars and other online education courses through CredAbilityU.
