reverse mortages

Reverse Mortgages

People are often confused regarding the prospects of a reverse mortgage because they are uncertain about how the whole process works. Although the concept of a reverse mortgage has been around for decades there has been limited information available to consumers until the fairly recent past. From the time the very first reverse mortgage was created in 1961 until legislation was established in 1987 to formally recognize and regulate the new genre, lending companies basically offered this options on an occasional basis with loose boundaries and little guidance.

This vague understanding is possibly what led to some of the skepticism and shyness toward reverse mortgages for some consumers. Today there is much more regulation and public information available for people to research and review while making a decision about considering a reverse mortgage. Some of the most basic information is available from lenders as well as third party sources that are not biased toward lenders or borrowers.

The Basics

Although reverse mortgages had been around for nearly four decades, they did not have a uniform name until Congress passed a bill in the 1980s. Today the FHA Home Equity Conversion Mortgage (HECM) is a nationally recognized and government insurable mortgage. The major difference between a traditional mortgage and a reverse mortgage is the payment schedule. Rather than building equity and making monthly mortgage payments, homeowners actually receive monthly payments from accrued equity through a finance company when they decide to take out a reverse mortgage. The additional income for homeowners who qualify for a reverse mortgage is tax-free and can be used for any purpose. There are benefits and drawbacks to a reverse mortgage and the option may not be an appropriate choice for every homeowner. There are several criteria that must be met before a reverse mortgage can be agreed upon and issued.

Qualifications And Benefits

Homeowners must be at least age 62 and agree to remain in the home for the duration of the reverse mortgage. When the last owner leaves the home the reverse mortgage payments cease. There are no income or credit requirements since the approval process and payment schedule are based on the total amount of accrued equity in the home. A simple calculation is used to determine the monthly payment amount and factors in general data from the housing market and various actuary criteria. Converting a portion of the value of a home into regular monthly income helps elderly residents live a full and productive life in their retirement years while enjoying the comfort of their homes.

A reverse mortgage is essentially a no-risk option for homeowners who are in need of relief from a financial burden because there is no possibility of losing the home to a foreclosure or short sale process. Additionally, any consumer who is considering a reverse mortgage is required to have a consultation with a HUD-approved home loan counselor who has experience and specialization in the reverse mortgage process.