A Primer on Reverse Mortgages
October 12, 2010 by Celebration
Filed under Web News
Economists report that as housing prices have increased over the past few years, the amount of money that households are saving through 401(k) plans and FDIC insured savings accounts has dropped. For several individuals nearing retirement age, that means they might be “equity rich” and “cash poor” at the same time. It is not uncommon today to see individuals living in $1 million homes nearly entirely reliant on social security to get by.
A 1994 Advisory Council on Social Security trends and issues concluded that reverse mortgages could give an additional source of income for seniors even though at the time housing prices were not high enough to make this a significant source. Well, things have changed.
A reverse mortgage is still a loan with your house as the collateral, but it’s entirely different from the kind of mortgage you got when you bought your first house. These are the major differences:
The Lender Pays You
That’s correct. You don’t make a monthly payment with a reverse mortgage. The lender pays you, and the loan can be set up so you can get paid in a lump sum, you can get paid regular monthly amount, or you can get paid at the times and in the amounts you request.
The terms of the loan determine what every one of these amounts would be. The primary determining factors are your age, the value of your home, and the existing interest rates at the time.
You Continue to Live in Your house
Staying in your home is really the whole purpose of reverse mortgages when you get down to it. The twist is that instead of paying somebody else to live there, you get paid while you continue to live there.
You are actually expected by the terms of the loan to continue to reside in the house as your principal residence. You can spend any amount of time visiting your children and grandchildren, you can travel for pleasure, and you can continue to spend summers at the lake as long as the house continues to be your principal residence.
You Retain Ownership of Your house
A reverse mortgage isn’t a sale. You hold all the rights of ownership that you had before the reverse mortgage loan. You don’t require the lender’s permission to paint the home a different color or to remodel. You can put your home on the market and sell it to the highest bidder. You can will it to your children.
If there’s a change in ownership, such as by sale or via the death of the last surviving owner, the reverse mortgage will have to be paid off at that time. The lender would be eligible to receive from the proceeds of the sale only the amount you actually received from the lender plus all accrued and unpaid interest to date. Any amount remaining after paying off the reverse mortgage lender would go to you, to your surviving spouse, or to your estate.
The Principal Amount of the Loan Increases With Each Payment
One more way of saying this is that you control the amount that must eventually be paid back by controlling the amount of cash you really get from the lender. A reverse mortgage is still a loan, and the money along with interest has to be paid back at some point, generally from the sale of the house after you and your spouse no longer reside there.
Because the principal amount of a reverse mortgage cannot be established till after you no longer live at the property, neither can the maturity date of the loan. This can be a challenging idea to wrap your mind around because it’s so different from conventional mortgages.
You can Never Owe More than the Value of Your house
This is true for the two reverse mortgage products sponsored by the Federal government (HECM and Home Keepers) although it may not be true for privately created reverse mortgage programs.
The benefit of the Federal programs is that you, your surviving spouse, or your estate, can never owe a lot more than the loan balance or the value of your house, no matter which is less. Your reverse mortgage lender cannot require repayment from you, your surviving spouse, or your heirs, or from any asset other than your house.
If you want more information on Reverse Mortgages Pros And Cons, don’t read just rehashed articles online to avoid getting ripped off.
Go here: Reverse Mortgage Pros And Cons
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