Mortgage Financing for Seniors
"More Americans are reaching retirement age with more mortgage and personal debt than ever before, putting unprecedented pressure on them to stay current on their loans. The Center for Retirement Research calculated that 43% of working households are in danger of having too little income to fund their retirement needs. According to a survey conducted by AARP - a strong proponent of reverse mortgages - 36% of middle-aged and older Americans stopped putting money into their retirement accounts in 2008, and 17% made early withdrawals from a retirement account.
Reverse mortgages are, thus, becoming more attractive, as retirees consider home equity as a reliable income source - an option many did not want to consider before, perhaps, but now must. In order to qualify for a government-insured HECM, the homeowner must be at least 62 years old. The size of the loan for which the borrower would qualify is based on the amount of equity in the property and the age of the borrower - generally, the older the borrower, the greater the equity, and the lower the interest rate, the bigger the loan.
Unlike a regular forward mortgage, in which the borrower pays the lender back, in a reverse mortgage, the lender pays the borrower, up to the size of the loan. Contrary to what many people assume, this is not a one-size-fits-all product. Borrowers may pick one of five separate payment plans, ranging from equal monthly payments for as long as at least one of the borrowers lives, to a line of credit, which the borrower draws down as needed until the line is exhausted.
HUD requires that borrowers make any necessary repairs to the property using proceeds from the loan, but repairs can be made after closing using funds the lender "sets aside." To ensure that seniors are well informed and understand the features, benefits and drawbacks of an HECM, they must participate in a consumer information session given by an independent FHA-approved HECM counselor." MortgageOrb by Robert D. Yeary
Many think that reverse mortgages are for refinancing only. That is not correct. Seniors can also use a reverse mortgage to purchase a more suitable residence.
Real estate professionals should recommend reverse mortgages when that product best meets the needs of the seniors.
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