With the rising costs of essential items for daily consumption, such as food, medical expenses and rent, seniors have to trim and prune their expenses and budgets, especially more so in these times of economic problems. They can take a reverse mortgage to utilize the equity in their home if they are aged 62 or above. A reverse mortgage is a federally insured loan insured through the FHA (Federal Housing Administration). The FHA uses approved appraisers to determine the value of the home or property being reverse-mortgaged and charges a 2% MIP (Mortgage Insurance Premium).
The FHA requires that borrowers would need to undergo counseling before submitting an application to a reverse mortgage lender. The property being reverse mortgaged would need to be the primary place of residence for the borrower. There are no other credit or income requirements.
The money got from a reverse mortgage is tax-free and can be treated like any other monthly income, a credit line, a lump sum or any combination of these. Home owning borrowers would still need to pay taxes and insurance on their homes.
Proceeds from the reverse mortgage loan are in addition to any Social Security or medicare benefits. The evaluation criteria for reverse mortgage are based on age of borrower, value of property and interest rates. The FHA has recently raised the cap on reverse mortgage values to $625,500. The older the senior is, the more is the money he or she will receive. The reverse mortgage programs are insured by the FHA, so even if there is a decline in home values, senior is protected.
A reverse mortgage can be used to pay off an existing mortgage, and to prevent a foreclosure. Seniors can make use of the tax-free cash in any way they please, such as a vacation, a home remodeling, a new car or travel.
As long as the senior remains in the same home, the money does not have to be repaid. When the home is sold and the senior is moving out or has passed away, then the mortgage debt and the fees have to be paid and the remaining money then can be passed on to the estate/heirs.
The law has been changed recently so seniors can purchase a new home with the money from a reverse mortgage. The money from reverse mortgage can be availed of in any of the following forms:
- in lump sum
- as monthly payment
- line of credit
- any combination of the above options.
The heirs of the borrower can retain the remaining equity in the property after completing repayment by sale of the house or through a refinance.
