Retire in the Comfort of Your Home Facts About Reverse Mortgages
A SENIOR PERSPECTIVE Many seniors share similar ideals—work hard, provide for the family, retire with the resources to meet basic needs, and leave a legacy to their family, often in the form of the home’s equity. While a few have seen this American dream fulfilled, for most seniors, their efforts have been derailed by unexpected life events and the ever-rising cost of living. These financial strains have left many seniors worrying about “what if.” WHAT IF? What if I can no longer make my mortgage payment? What if the car breaks down? What if my home needs repair? What if my health takes a turn? For many seniors, the “I have a comfortable life. I answer to “what own my home, I have friends if” is a reverse and family, and my day-tomortgage. They day needs are met. But at 82 have discovered years old I would go to bed that reverse every night worrying that if mortgages are a my family or I had any urgent safe and secure needs, I would not have the financial tool that money I would need. Well, can assist them I have only used $3,000 of in remaining in the $133,000 in my reverse their home, free of mortgage line of credit, but I monthly mortgage have never slept so well in my payments life.” (borrower must J. J.; Broomfield, CO remain current on property taxes, homeowner’s insurance and HOA dues), financially independent and with the peace of mind knowing they have the resources to pay for health care, home modifications, or simply enjoy life a little more. Making the decision to obtain a reverse
mortgage is an important and difficult one. It is not uncommon for seniors to find it difficult to set aside the belief that the equity in their home is somehow off limits, and to overcome feelings of fear or guilt about pursuing a reverse mortgage— even when it may be the best solution for meeting their financial needs. WHAT IS A REVERSE MORTGAGE?
A reverse mortgage enables you to withdraw a portion of your home’s equity, use it any way you choose (subject to HUD guidelines), make no monthly mortgage payments (borrower must remain current on property taxes, homeowner’s insurance and HOA dues), stay in your home as long as you like and when you are ready to sell your home or have passed, the loan is repaid. This program is insured by the Federal Housing Administration (“FHA”). You do not forfeit title to your home or lose any other rights as the homeowner. You or your heirs decide when or if the home is to be sold, and after repaying the loan balance, all remaining equity in the home belongs to you or your heirs. WHO QUALIFIES? Qualifying for a reverse mortgage simply requires that the homeowner(s) be 62 years of age or older, and own or be purchasing a home that is considered their primary residence. The home must meet standard appraisal guidelines for property type, value and condition. Since the borrower does not make a monthly mortgage payment (borrower must remain current on property taxes, homeowner’s insurance and HOA dues), there is only nominal income and credit review to ensure the reverse mortgage is the best solution.
IS IT SAFE? In 1988 HUD authorized the Home Equity Conversion Mortgage (HECM), the most popular reverse mortgage program available. With the assistance of Congress, HUD enacted “My husband and I have laws that put into worked hard all our place safeguards lives. But like many small that guarantee business owners, we had a senior will our good years and bad. We used the equity in our not give up title home to get us through to their home the down years, and after and will not finally selling the business, put themselves, at age 71 I was updating my their home or resume so we could afford their family in to pay the $1,400 monthly any financial mortgage payment. Our risk. Paying reverse mortgage was off a traditional just enough to cover the mortgage with a balance on our mortgage, reverse mortgage but now I am looking to secures the home go back to work because and can help I want to, not because I eliminate the risk have to.” of foreclosure L.M.; Denver, CO that may occur on a traditional mortgage due to an inability to make a monthly mortgage payment. HOW MUCH OF MY EQUITY MAY I USE AND HOW DO I TAKE THE FUNDS? The borrower’s age, the home’s value and the current interest rate are used to determine available funds. From this calculation, fees are deducted and any existing mortgage balances are paid in full. The amount that remains
is available to the homeowner to draw as a lump sum, set up as a line of credit, receive as monthly tax-free income (consult your local tax advisor) or any combination of these three options. Amounts available vary depending upon initial funds needed to pay off mandatory obligations (such as existing mortgages and other liens). Your reverse mortgage consultant will review program options and related costs with you to help you determine how to best structure your reverse mortgage. Regardless of how you choose to draw your funds, interest accrues only against the outstanding loan balance, and all remaining equity belongs to you or your heirs. HOW CAN I USE MY FUNDS? Ask anyone if they want a mortgage…reverse or otherwise…and the obvious answer is, “heavens, no!” However, most people could benefit by having access to additional financial resources. Some seniors obtain a reverse mortgage only as a safety net to be used in emergencies. For others, it is used sparingly for things like home repairs, property taxes and unexpected expenses. You can use reverse mortgage funds anyway you choose. HOW DO I SELECT A LENDER? “I have MS and needed a better wheelchair and modifications HUD regulations to my home. I did not have concerning the the extra funds available for terms of a reverse these expenses, so I looked mortgage ensure into a reverse mortgage. The that lenders operate reverse mortgage made it under similar possible for me to get a better guidelines. It is wheelchair, make the necessary depth of knowledge modifications to my home and and the expertise to improve my way of life.” make the program Judy, Lubbock, TX easy to understand and the process
simple, which distinguishes one lender from another. While a growing number of traditional lenders are adding reverse mortgages to their menu of programs, HUD reports indicate that a small group of lenders “When I received notice that due to an escrow shortage and an increase in my property taxes my house payment was increasing $200 per month, I felt I had no option but to sell my home. When you told me I could keep my home, have no mortgage payment, and receive monthly income–I couldn’t believe it. My only regret is that it took until I was 78 to start enjoying my retirement.” W.T.; Littleton, CO
specialize in this program; and it is these lenders who help the majority of seniors choosing to obtain a reverse mortgage. You will appreciate working with an expert as you consider which reverse mortgage program is best for you, and how to structure the loan to best suit your needs. 1st Reverse Mortgage USA® is recognized regionally and nationally as an expert in reverse mortgage lending, and is among an elite group of lenders who are authorized by HUD to process, underwrite and close the reverse mortgages originated by their member institutions.
LET’S CLEAR UP SOME MISCONCEPTIONS ABOUT REVERSE MORTGAGES 1. Provided you comply with the conditions of the loan as well as with HUD requirements, you retain all rights as the homeowner and full ownership of your home. 2. Because the reverse mortgage is secured solely by the property, you can never owe more than the value of the home, and you cannot leave yourself or your family in debt. 3. There often is substantial equity remaining that is available to pass onto your heirs. 4. The proceeds from a reverse mortgage are not taxable and will not affect your Social Security or Medicare benefits (consult your local tax advisor). 5. Proceeds from a reverse mortgage can be used to pay off existing liens or mortgages against the property (subject to available funds), or used in the purchase of a new home that might better suit your needs. In all cases, you will not be required to make monthly mortgage payments as long as one borrower remains in the home as the primary residence and the borrower(s) remain current on property taxes, homeowner’s insurance and HOA dues.
Disclaimer: Cherry Creek Mortgage Company is not endorsed by, nor acting on behalf of or at the direction of, the U.S. Department of Housing and Urban Development, Federal Housing Administration, the Veterans Administration, the U.S. Department of Agriculture or the Federal Government.