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Reverse Mortgages Keep Giving and Giving and Giving
Reverse mortgages remind me of the old commercial with the
Energizer Bunny. Like Energizer batteries that just keep
going and going and going, reverse mortgages just keep
giving and giving and giving.
In case you are not familiar with what a reverse mortgage
is, here is a short definition: A reverse mortgage is a
unique type of loan or financial planning tool that allows
senior homeowners that are 62 years or older to access the
equity that they have built up in their homes. A reverse
mortgage is unlike any other type of mortgage, because a
reverse mortgage requires no monthly payments to be paid to
the lender. It also does not require the senior homeowner to
qualify for the loan based on credit or income.
The equity that is paid to the homeowner can be taken as a
lump sum, a set monthly amount or a combination of the two.
The money is non-taxable and does not adversely affect the
senior's social security or medicare benefits. The amount of
money that a senior can qualify for is determined by the age
of the youngest owner on title, the value of the property
and it's location, the interest rate at the time of
application, and the amount of equity the senior has built
up in the property.
Now, back to the energizer bunny analogy.
The reason that I say that a reverse mortgage keeps
giving and giving and giving is because if you were to opt
for the monthly "tenure" payments to be made to you, you are
guaranteed by the Federal Government, that you will continue
to receive that same monthly amount every month for as long
as you live in your home. That's right! You collect until
you die or permanently leave your home. Even if you were to
live to be 112 and you all ready received far more income
from the reverse mortgage than your home is worth, you still
get that money every month no matter what, as long as you
remain in your home. You, your estate and your heirs are NOT
obligated to pay back the reverse mortgage lender any more
money than your house can be sold for at the time of your
death or when you permanently move out of your home. So, if
you outlive your life expectancy and end up receiving more
money than the value of your home, the U.S. Department of
Housing and Urban Development (HUD) will pay the lender for
any shortfall on a HECM (FHA) reverse mortgage.
Additionally, there are similar protections in place for
non-FHA reverse mortgages as well.
One of the biggest criticisms you will hear when you first
look into the pros and cons of getting a reverse mortgage is
that the closing costs are expensive. Well at face value,
that seems like a true statement. If you compare the
closing costs of a reverse mortgage to the closing costs of
a traditional forward mortgage, you will find that a reverse
mortgage can cost more than twice as much in fees than a
forward mortgage. But lets take a moment and analyze why
this is the case. Remember that GREAT benefit that we
started out talking about; the perpetual monthly income that
is guaranteed for as long as you remain in your home? The
reason that the government can stand behind such a huge
guarantee like that, is because they have essentially
required every reverse mortgage borrower to contribute to
the insurance fund that will payoff the lenders in case of a
shortfall. So instead of your estate or your heirs having to
make up the shortfall, the insurance fund is tapped to make
the lender whole. If this insurance fund was not there, you
can bet there would be few, if any, lenders making reverse
mortgages with the safeguards that are in place today. Each
FHA reverse mortgage that is initiated today carries a 2%
fee for this insurance fund which is a part of the overall
closing costs associated with a reverse mortgage. So, yes
the costs are higher for a reverse mortgage, but they are
justified in order to make the reverse mortgage the valuable
financial planning tool that it is for many seniors today.
Many seniors would be strapped for money if they did not
have the ability to tap into one of their biggest assets,
their home equity.
Reverse mortgages are becoming more and more popular by the
day, as more seniors are becoming educated about how they
really work. There have been a lot of myths perpetuated over
the years about reverse mortgages as well as a lot of
improvements made to the reverse mortgage products that are
currently offered. The number of federally insured reverse
mortgages made in the United States increased by 77% in the
fiscal year 2006 compared to 2005. More reverse mortgage
products are being developed and will be introduced to the
market place in upcoming months.
For more in depth information regarding reverse mortgages,
locating a lender in your area and finding out how much
money you can qualify for, please visit
About the Author: N.Sioris is a senior reverse mortgage specialist and the administrator of the reverse mortgage informational website called, Let Your Home Pay You.com