updated 6/14/2009 2:23:37 PM ET 2009-06-14T18:23:37
According to The Associated Press, a record 11,216 reverse money mortgages were made in March of this year, up from 9,086 the month before. With retirees’ stock investments losing much of their worth, seniors are turning to reverse mortgages to help fund their retirement. Today, thanks to new federal legislation, the elderly can get bigger mortgages with smaller origination fees, making reverse mortgages a smart, practical option for cash-poor, house-rich seniors.
What is a reverse money mortgage?
It’s a loan against your home that you don’t have to pay back as long as you continue to live in your home. In short, the lender advances you the equity you have locked up while you continue to live there, usually in monthly payments from the bank.
How much money can you get?
The older you are, the bigger the loan: The amount of cash you can get depends on your age, usually your home’s value and the reverse mortgage plan you choose. The oldest borrowers with the most expensive homes get the biggest loans.
Take the money as you like it: There are different ways to take the money; you can take one lump sum, monthly payments over a fixed period of time, or as a line of credit to use when you want.
You make no monthly payment: Unlike a traditional mortgage, you make no monthly payments while you live in your home, and with the new FHA’s Home Equity Conversion Mortgage (HECM), you can move to a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid.
New loan limit raised to $625K: HUD recently increased limits on federally insured reverse money mortgages to $625K for this year. Next year it might revert back to $417K. Lender fees are now capped at $6,000 regardless of the size of the loan, so borrowers can get more money for lower fees. The government is losing money on this program and, as reverse mortgages become more popular, federal fees will go up as the loan amounts are lowered.
You still pay property taxes: You’re still responsible for property taxes, insurance and home repairs. In fact, making certain repairs and maintaining your home can be a requirement of the loan.
Lender can’t cancel: Unlike a home equity line of credit, the proceeds from a reverse mortgage can’t be frozen or canceled.
Who’s eligible?
62 years or older: Borrowers must be 62 years or older. That means each owner of the home must be 62 or older.
There’s no income restriction
Must have wiggle room: You must own your home outright, or have a low mortgage balance. Any mortgage balance is paid off at closing with proceeds from the new reverse loan.
Owe the lender nothing: It must be your primary residence. Reverse mortgages are also available on 2- to 4-unit properties, condos, co-ops, planned unit developments and prefab homes. Mobile homes are not eligible.
