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Reverse Mortgage Loans: Loans That Pay You Back |
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For a growing number of seniors, the solution lies in reverse mortgage loans. The mortgage loans make payments to the homeowner, either monthly or in one lump sum, from the equity in their house as the funding source. Repayment doesn't occur till the house is vacated. Let's take an example: Dorothy and John lived for about 20 years in the home they built together. When John died just 20 days before retirement, Dorothy very nearly lost the place. Dorothy recalls losing John, his insurance and most of his pension. The little pension of his that she got lasted no more than one year. She survived on Social Security but it couldn't match the pace of inflation. A common situation that senior citizens find themselves in. Despite being the owners of their homes, money is never enough for unexpected expenses and rising property taxes. Some time later Dorothy approached Wells Fargo Home Mortgage, closing a $77,000 FHA Home Equity Conversion Mortgage. Now her extra income exceeds $600 a month. A growing awareness has fuelled similar arrangements. But no major demand exists with just about 70,000 of such mortgage loans initiated in the last 10 years. Seniors often feel the emotional urge to pass on to their offspring for which the house makes the ideal major asset. Besides a resource for medical expenses, reverse mortgage loans are all-purpose whether education, debts, better lifestyle or even investments. Reverse mortgage loans require no payments provided borrowers don't leave the home. As home-equity loans require monthly payments they make these mortgage loans comparatively superior. The minimum age of homeowners needs to be 62 years with minimal, if any, on their main residence to qualify for reverse mortgage loans. Not a superlative prospect for the average 62 year old due to the long remaining life expectancy shrinking the available funds. Those between 70 and 80 are in a totally different financial situation being more concerned with long-term care matters. The remaining life expectancy is detrimental to the amount of money that will be granted to a reverse mortgage borrower. The mortgage loans are repaid when the house is either sold or refinanced following the loss of a spouse as in the case of Dorothy. Therefore the loan amount is always less than what the house is worth. A tenure loan is another option for homeowners to receive payments until the time of vacating the property. Then there are line-of-credit mortgage loans that involve drawing the funds by the borrower when required. Almost 75% of the mortgage loans of Fannie Mae include this feature. Often seniors take a combination of a line of credit and tenure loans. Proceeds from a Home Equity Conversion Loan are exempt from taxation, with the homeowner able to gift the funds to children and grandchildren if they are not required personally. The survivors are given the option of paying off the loan, refinancing the mortgage loans or letting go of the house. There are disadvantages too. A major consideration for seniors considering Home Equity Conversion Mortgage loans (HECM) is upfront fees, which can be substantial. These mortgage loans are subject to regular mortgage closing costs ranging up to 5 to 7% of the total loan amount. These mortgage loans are mostly insured by the Federal Housing Authority (FHA) inclusive of an upfront fee and an annual premium. It is advisable for borrowers to plan staying for several years before running these expenses. The options need to be evaluated by one and all as they age. Logic should prevail over emotions for a decision. The maximum information is provided here to enable readers to make their own decision. Therefore if Dorothy's situation sounds familiar, help is at hand with reverse mortgage loans. Reverse mortgage loans in general prove inadequate to pay for long term care. Also if you want to use a reverse mortgage for long-term care, Medicaid minus a loan is the better option. |
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