Is a Reverse Mortgage for You?
By Kristi Vaughan
Are you “house-rich” but “cash-poor?” If you are 62 years of age or older, you may be eligible for a reverse mortgage. Is this something you should consider?
What is a reverse mortgage?
A reverse mortgage is a home loan that allows qualified homeowners to convert a portion of the equity in their home into cash. The homeowner must be over 62 years, own and live in the home and agree to consumer counseling to qualify. The amount that can be borrowed depends on the specific mortgage program, the borrower's age, value of the home and prevailing interest rates and closing costs.
Reverse mortgages have been around since the 1960s but became more well-known in the late 1980s and early 1990s when then President Reagan signed legislation approving a Federal Housing Authority mortgage insurance program.
While still relatively rare, their use has been growing, particularly in central cities. The National Reverse Mortgage Lenders Association estimates there are 15 million elder U.S. households that could qualify for reverse mortgages. In the first half of fiscal 2003-2004 alone, the federal department of Housing and Urban Devleopment, which oversees the FHA, had insured more than 17,000 loans, nearly as many as the entire previous year.
How are loan payments made?
There are several options for receiving loan payments ranging from lines of credit to regular, equal monthly payments for as long as one borrower lives and occupies the property. A financial advisor can help you determine what option would be best for your circumstances.
One note: although a number of lenders offer reverse mortgage programs, it is only the Home Equity Conversion Mortgage (HECM) that is insured by the FHA. This insurance provides guarantees to borrowers that they will get their money and to lenders that they will be repaid.
How is the loan repaid?
A reverse mortgage loan is repaid when the last surviving borrower dies, sells the home or permanently moves out. At that time, the total amount of the loan, plus interest and other fees, is taken out of the proceeds resulting from sale of the house.
Find a lender
HECM loans are available in all states as well as the District of Columbia and Puerto Rico. You can get a list of FHA-insured mortgage lenders through the federal Department of Housing and Urban Development website.
