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Reverse Mortgages: How seniors can tap equity for extra cash

Posted on: 19th Jun, 2005 12:36 am
If you're a senior, looking to cash out your home equity without having to worry about monthly payments, a reverse mortgage is what you may need. If you'd like to know how a reverse mortgage can help you, and what it's all about, check out the reverse mortgage information below:



What is a reverse mortgage?

A Reverse mortgage (reverse equity mortgages) is a home loan that provides you with a steady flow of tax-free income either in installments or in lump sum. Since the loan provides an easy flow of cash, it is the preferred choice of many seniors in the country.

How does a reverse mortgage work?

It's just the reverse of a traditional mortgage which requires monthly payments. With a reverse mortgage, your debt accumulates as the bank doesn't collect the payments till the loan period ends or you or your heirs sell. Here are 5 things you should be aware of before you apply for a reverse equity mortgage:

  1. How to get the cash:
    You can get the reverse mortgage loan funds in different ways.
    • The lender or the company can provide you with a single payment.
    • You may ask for monthly cash advances.
    • You can apply for a line-of-credit that gives you the opportunity to withdraw a required amount of cash whenever you are in need.
    • The lender may allow for a combination of monthly cash advances as well as "credit-line account".
  2. Reverse mortgage limit:
    The maximum loan amount offered ranges from $200,160 to $362,790, depending on the county you live in. However under the 2008 New Housing Bill, the loan limit has been raised to $417,000. For high cost housing areas, the limit is further raised to $625,000. However, the loan amount that you will qualify for, depends upon the factors given below:
    • Age of the youngest borrower
    • The appraised value of your home
    • The equity built up in your home
    • What loan program you choose
    • How you want to get the loan funds
    Besides the above factors, the loan limit may also depend upon current interest rates and closing costs on home loans in your area.

  3. How to qualify for the loan:
    Unlike other loan options, there is no minimum income or credit requirement to qualify for a reverse mortgage. However, if you have unpaid debt on your home, it should be paid off before you apply for a reverse mortgage or else paid off as soon as you get the loan proceeds. Check out if you are eligible for reverse mortgages.

  4. Loan types you can apply for:
    You'll find a variety of loan products available in the market. They're the FHA-insured Home equity conversion mortgage (HECM), the Home Keeper Mortgage offered by Fannie Mae approved lenders, and others. You need to compare these programs and decide on the one that suits you. Check out more on Reverse Mortgages Comparison.

  5. Reverse mortgage interest rate:
    These loans are mostly adjustable rate mortgages that adjust on a monthly, semi-annual, or annual basis. The interest rates are usually based on the 1 year U.S. Treasury (T-Bill) or the LIBOR index. However, you'll also find fixed rate HECMs offered by certain lenders. However, rate changes do not affect the principal you get; rather it affects the amount you owe.

What are the advantages of a reverse mortgage?

Reverse mortgages assisted countless homeowners improve their quality of life upon retirement. These are very flexible financial planning products with limited restrictions attached to them. Key benefits of this offer are listed below-
  1. No restrictions on the use of money:
    Money that you receive through a reverse mortgage can be utilized for whatever purposes you want. You can use it for funding the education of a family member, for traveling purposes, for meeting the basic necessities of life or for anything else. You can also park the amount in another account as savings for the rainy days.
  2. Less risks of default:
    In a reverse mortgage, there is no chance of losing your home for non-payment. Whereas, in case of a home equity loan, you may lose your home because of non-payment. Again, reverse mortgage lenders don’t have any claim on your other assets and income.
  3. Federally guaranteed:
    There are a variety of loan products available in the market. The most widely used reverse mortgage is the federally guaranteed home equity conversion mortgages (HECM). HECMs are managed by the Department of Housing and Urban Affairs. Since these offers are federally backed, you will continue to receive payments even if the reverse mortgage lenders default.
  4. Tax benefits:
    Reverse mortgage is treated as a loan. The money that you receive through this route is tax-free. This is regardless of whether you receive the money in monthly basis or in lump sum amount.
  5. Retains home ownership:
    As long as you stay in the house, you retain ownership of the house. However, you are responsible for paying for the property taxes, insurance and maintenance.

Are there disadvantages or dangers of reverse mortgages?

There are 3 reverse mortgage pitfalls to watch out for:
  1. Rising debt and falling equity:
    A traditional mortgage requires you to make payments and build up equity. But reverse mortgages reduce your equity because you don't need to make monthly payments, and causes your mortgage debt ratio to increase. Your equity gets lower unless your home value appreciates. Thus, reverse mortgages are often known as "rising debt and falling equity" loans.

    Here's an example on "Rising debt and falling equity".

    Monthly Loan Amount: $2,000
    Yearly Loan Advance: $24,000
    Yearly Interest Rate:
    8%
    Original Home Value:
    $250,000
    Appreciation Rate of Home Value:
    5% per annum

    End of YearPrincipal Amount ($)Total Interest ($)Loan Amount ($)Total Home Value ($)Home Equity ($)
    (Total Home Value - Loan Amount)
    124,0001,05225,052262,500237,448
    248,0004,102 52,102275,625223,523
    372,0009,22481,224289,406208,182
    496,00016,495112,495303,876191,381
    5120,00025,990 145,990319,070173,080

    As the above calculation shows, even if your home value goes up, it may not be enough to raise your home equity. The rate of appreciation in the home value should be high enough so that even if your loan balance increases, your home equity won't go down easily.

    Now, when the appreciation isn't high enough, your equity will reduce, and as a result you may not have a home to leave for your heirs. This is because your heirs will only receive your home when the value of the home is more than what you owe.

  2. Rates and closing costs:
    The rates being adjustable can be higher at times thereby raising your interest and hence your debt because you aren't paying monthly. Some reverse mortgages have high closing costs, although under the new housing laws, the costs have been cut down and capped so that older homeowners can afford to get a reverse loan.

  3. Eligibility for Medicaid benefits: The loan proceeds may affect your eligibility to receive Medicaid benefits and Supplemental Social Security income (SSI). However, you can still qualify for Medicare and Social Security Income.
In spite of the reverse mortgage cons, these loans are preferable options when it comes to paying for your healthcare costs, remodeling your home, making a big purchase, or changing your lifestyle. Moreover, if you have debts to pay off, need money for someone's education, or wish to plan for a vacation, reverse mortgages are worth considering.

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What is a reverse mortgage?
Hi retired!

Welcome to forums!

Reverse mortgages are hardly available on mobile homes. You should contact the local mobile home loan lenders and apply for a reverse mortgage. If there is equity in your property, then there are some chances that you may get a reverse mortgage.

Feel free to ask if you've further queries.

Sussane
Posted on: 06th Nov, 2011 09:55 pm
I just want to share this piece of information that I have just recently read. It says that the Consumer Financial Protection Bureau has prepared a study for Congress over the state of reverse mortgages in the nation. The CFPB is concerned about reverse mortgages having a harmful impact on senior citizens who borrow them against the equity in their homes during retirement. For the full article, kindly read here: "personalmoneynetwork.com/moneyblog/2012/06/28/cfpb-reverse-mortgages/"
Posted on: 30th Jun, 2012 12:57 am
Thank you for sharing the information!! :)
Posted on: 01st Jul, 2012 09:36 pm
>>Does a double wide mobile home qualify for a reverse mortgage

Yes, as long as it was manufactured after June 15, 1976.
Posted on: 11th Nov, 2012 03:23 pm
It's worth noting that if you've served in the US Armed Forces you might get a lot of benefit from a mortgage investors corporation that specializes in helping vets. You do need to shop around to make sure you get a good one; Linkedin is a good place to start. Try this link:

"linkedin.com/company/mortgage-investors-corporation"
Posted on: 22nd Feb, 2013 10:27 am
two brothers inherited a house, both listed on deed, brother A has lifetime tenancy, brother B wants to be removed from title and recieve his 50% equity. Brother A non-compliant and unable to secure loan for buy-out both in 80's do not get along and no possiblity of reconcilation. What are brother B's options?
Posted on: 17th Mar, 2013 10:07 pm
Hi Guest,

Brother B can file a partition lawsuit and request the court to sell off the property. This will help Brother B to remove his name from the property deed.

Thanks
Posted on: 18th Mar, 2013 01:53 am
Have the Brothers researched a Reverse Mortgage? That's their solution, if they have approximately 35% equity.
Posted on: 18th Mar, 2013 08:39 am
Has anyone used Senior Home Loans for a reverse mortgage? I am considering them, and just wondering about others' experiences.

thanks
Posted on: 21st Mar, 2013 02:09 pm
I haven't heard of them. Have you heard of my bank, Proficio? I'm a Reverse Mortgage Direct Lender, but it seems very few people have heard of us.

The big banks are no longer doing Reverse Mortgages. Metlife, Wells Fargo and Bank of America no longer off them, but smaller banks like mine still are.
Posted on: 21st Mar, 2013 02:20 pm
I spoke with a reverse mortgage lender and he advised that my condo association was not registered with the FHA. He sent me a set of documents for my association to apply for approval. The president of the association returned the documents to me saying that they have no stake in the matter and that it is up to the lender and/or me to complete the documents for submission. The president provided me with all of the association information, e.g., budget, reserves, insurance, etc., towards that end. My questions are, who is responsible for applying for FHA inclusion and/or are there other ways to get a reverse mortgage without this hassle?
Posted on: 28th Mar, 2013 01:57 am
Hi Guest,

Well, my common sense says that it's the condo association who should apply for the FHA inclusion.
Posted on: 28th Mar, 2013 11:10 pm
can you get a reverse mortgage on a mobile home and if so, who would i contact?
Posted on: 15th Apr, 2013 07:30 pm
Posted on: 15th Apr, 2013 10:20 pm
I have qualified foe a reverse mortgage until the company found out I borrowed some money against my home with my spouse signing the note, but she is not on the title. What company can I go through for a non borrowing spouse reverse mortgage.
Posted on: 21st Jun, 2013 11:24 am
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