The New Reverse Mortgage: Past & Present
To some, the mere mention of a reverse mortgage brings negative emotions from a distant experience with a loved one. To be fair, reverse mortgages of the past have indeed earned some of the negative publicity associated with them, but this mortgage product has many half-truths and misconceptions perpetuated by the media. Today's reverse mortgage is much different and provides many safeguards that greatly benefit the consumer.
History of the Reverse Mortgage
The very first reverse mortgage was written in 1961 in Portland Maine by Deering Savings & Loan. Many years later, the first congressional hearing in 1983 began. The Senate approved a proposal by Senator John Heinz to have reverse mortgages insured by the Federal Housing Administration (FHA). Ronald Reagan signed the reverse mortgage bill into law in 1988, and the government insured loan was established. The HECM (Home Equity Conversion Mortgage) reverse mortgage lender participation is at its highest number at 195 since inception.
Fast forward to the year 2008, and we begin to see the first of the baby boomers reach age 62. The reverse mortgage production exceeds expectations in the number of originations. This is partly due to the sheer number of baby boomers retiring and the fact that in 2008 we entered an official recession aptly name the Great Recession. The stock markets are down which means 401(k)'s are down. These boomers are looking for ways to supplement their income without withdrawing their retirement funds.
In 2009 the first reverse mortgage purchase program was born where borrowers can purchase a home and never have to make a mortgage payment. In 2013 and 2014, the reverse mortgage product underwent several changes that resulted in the product becoming safer and less risky for the borrower. The Financial Assessment was implemented in 2015 which requires the borrowers to undergo a credit and income assessment and may require the borrower to have a "Life Expectancy Set-Aside" account (LESA) to pay for property taxes and homeowner's insurance.
Some of the bad press that the reverse mortgage has garnered has been from many elderly homeowners's not paying their property taxes, and insurance and the lender have to foreclose on the loan. The reverse mortgage is no different than a forward mortgage in that regard. Paying property taxes and homeowner's insurance has always been the responsibility of the homeowner yet somehow the media portrays the lender in a negative light for not "disclosing" this information to the homeowner. If you own real estate, you will always have that responsibility. To do otherwise is merely financial mismanagement.
The Present Reverse Mortgage: Who Is It For?
- Age 62 Or Older
- FHA-Qualified Home Must Live In Home More Than 6 Months A Year
- Generally, Won’t Affect Social Security and Medicare Benefits- Consult your tax advisor
Reverse Mortgage Benefits
- Keep The Title To Your Home*
- Basic Credit & Income Qualifications
- Loan Proceeds from Equity 45-75% are Usually Tax-Free**
- Never A Monthly Payment – Still Responsible For Maintenance, Taxes, And Insurance As Long As They Occupy Their Home
- Does NOT Require Repayment Until*** The Last Living Borrower Permanently Leaves The Home
- Borrower Chooses To Sell The Property
- Never Owe More Than Home Value - With FHA-Insured Reverse Mortgages
- Able To Purchase A Home For 35-55% Down of New Residence Sale Price****
For more information on reverse or forward mortgages please feel free to contact me through activerain or my website at GreenvilleSC.mortgage
*some circumstances will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, insurance and maintenance. Credit is subject to age, property and some limited debt qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change. **This advertisement is not tax advice. Please consult a tax advisor for your specific situation.
***Heirs will have six months with two 90-day optional extensions to either refinance the home if they want to purchase it at 95% of the appraised value; keep any net proceeds; or walk away if the property is upside down. ****Percentage of down payment required will is determined by borrower’s age, interest rates, and the lesser of the home’s appraised value or purchase price.
NOTE: Some circumstances will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, insurance and maintenance. Credit is subject to age, property and some limited debt qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.