By Guest Author David Beart

Rumors are that a reverse mortgage is only for people of a certain age - usually seniors. True or false?

Reverse Mortgage: American Style

For the most part, it’s true, particularly if you consider how they came about. In the United States, reverse mortgages have been around for some 20 years and they were created when the American Associated of Retired Persons lobbied the US Congress to come up with a financial product that would allow seniors to stay in their homes as long as possible. It took awhile for the product to catch the attention of the public. According to Cathy Jett who wrote an article for a Virginia newspaper, reverse mortgages have been gaining popularity only in the last three years.

At its most basic level, a reserve mortgage is a loan that a homeowner takes out on his house. American laws dictate that the homeowner must be 62 years and older, own his house and live there for majority of the time. When they apply for a reverse mortgage, the amount they receive will depend on their age, the interest rates in effect at the time of their application and the value of their house. The applicant has the choice of receiving the loan in one lump sum, in monthly instalments, in the form of a line of credit or as a combination of the first three options.

Unlike a regular or traditional mortgage, a reverse mortgage does not require the applicant to make monthly payments. The loan however must be paid in full once the applicant sells the house or no longer uses it as a principal residence. This makes owning your house longer a feasible alternative - you never run the risk of losing your home provided you pay the appropriate property taxes and insurance. A reverse mortgage resembles a traditional or regular mortgage only insofar as closing costs are concerned, including any fees that apply for servicing the loan and other such upfront costs.

Reverse Mortgage: Canadian Style

The principles that lie at the core of an American and Canadian reverse mortgage are the same. Like the US, this kind of financial product appeals to older Canadians. In cases where Canadian seniors get divorced - as an example - and there isn’t much by way of assets and hard cash, the house remains the most important asset of Canadians. During a divorce, the husband may get the money and the wife the house. Those who end up with the house are therefore house-rich but cash-poor.

For Canadian seniors who own a house that is fully paid or almost paid for, their piece of real estate can be an excellent source of additional income. They may want to travel, renovate or help a son or daughter still in university.

There was this one woman who applied for a reverse mortgage because she needed money. The bank gave her $50,000; she does not have to repay that amount for a certain number of years and for as long as she lives in the house.

A reverse mortgage therefore is ideal for seniors who have a house but have a low income, and need financial resources to continue living. Reports indicate that on the average, houses constitute 80% of Canadian seniors’ assets. If their income or pension is low, they don’t have the necessary cash required to meet their day-to-day. So with a reverse mortgage, seniors can avail of a lump sum amount with no obligation to pay it back for a certain number of years and as long as they remain in their homes.

A writer, P.J. Wade, says it’s a great way to have your home and money as well. A reverse mortgage enables an applicant to tap into the equity of his home for cash.

Some experts recommend not taking a reverse mortgage until you’re in your 60s. Applying for a reverse mortgage in your 50s means that you’re still young by the time the equity in your house is gone. This is the downside associated with reverse mortgages. The equity disappears after a certain number of years and the life of the loan ends, with the principal still outstanding and huge interests to boot!

There’s a match to this downside. When you have a reverse mortgage, and you’re unable to pay your debt, your house cannot be foreclosed even if the amount exceeds the value of your house.

Reverse Mortgage: Think of Alternatives

Before you apply for a reverse mortgage, gather at least two or three opinions. Your banker may offer alternatives. Many lenders agree that a reverse mortgage should only be regarded as a last resort. One alternative is a home equity line of credit, where you could have a source of cash by using your house as security. Another alternative is, if your children have left home and you have a spare bedroom or you don’t use your basement much, you may want to consider renting it out for added income.

Downsizing is another option. It used to be that your house was comfortable because the kids were growing up and had friends over, and you and your husband entertained a lot. If you don’t need your sprawling cottage anymore, and you can’t keep up with the maintenance, wouldn’t it be wiser to sell it in exchange for a smaller home?

To Reverse or Not to Reverse?

If you’re at a loss about choosing between a reverse mortgage and a cheaper alternative like a line of credit, test your feelings with these questions:

• Can you honestly say that you love your house and can’t bear to move to another place? Are you perfectly willing to do what needs to be done to keep it in tip top shape?
• Will you be able to sleep at night knowing that the money you acquired against your house via a reverse mortgage will eventually have to be paid in full and before accumulating debt eats up your equity?
• Are you in a position to pay the property taxes and insurance premiums as well as cough up amounts for repairs and improvements to your house? Remember that failure to pay taxes can oblige the lender to demand full repayment of the mortgage.
• Will you have sufficient resources to meet interest and principal payments on the reverse mortgage once they fall due?
• Finally, speak to some of your friends who have reverse mortgages. Find out what their experience has been. Are they glad they did it, or wished now they hadn’t?

Interrogate your lender if you must, no matter how repetitive your questions are. Your lender might just utter something that will raise your antennas higher or convince you that reverse mortgages are the way to go!

About the Author

David Beart is the owner of www.professorshouse.com . Our site covers mortgages, pets, family forums, recipes and other household issues.

By Guest Authors Charles and Susan Truett

Reverse mortgages can be a great solution for seniors who wish to remain in their home but are having difficulty making their monthly payments and meeting other financial obligations. If you are over age 62 and own your own home, the bank will actually pay you money so you can stay in your home, rather than the other way around. It is important to collect as much reverse mortgage information as possible before deciding whether to take out the loan.

Anyone is eligible for a reverse mortgage loan, even if they have no income. Your home must be a single family residence in a one to four unit dwelling, a condominium or some type of manufactured home. Cooperatives and most mobile homes are not eligible. The home must be at least one year old and you have to first meet with an authorized counselor.

You can obtain the loan as a lump sum payment, a fixed monthly amount or as a line of credit that you use whenever you need it. The money can be used for just about any purpose. This can include paying property taxes or medical bills, home repairs and improvements, paying off credit cards or just daily living expenses. The amount of money you receive depends upon your age, the amount of equity in the home, its appraised value and current interest rates. The reverse mortgage loan does not have to be repaid until you sell the home, permanently move out, or pass away. Your loan could also become due if you allow the property to deteriorate, you fail to pay property taxes or hazard insurance, or if the last surviving borrower does not occupy the home for 12 months in a row due to illness.

There are some fees involved with a reverse mortgage loan, similar to those you would incur with a regular mortgage. These include origination fees which cover the lenders operating expenses and are currently capped at the greater of $2,000 or 2% of the maximum FHA loan limit. In addition you will be required to take out mortgage insurance and pay an appraisal fee which ranges between $300 - $400. Other closing costs include fees for a credit report (usually under $20), flood certification, closing and title search, document preparation, recording, courier, pest inspection and a land survey. In addition, a monthly service set-aside fee of $30-35 per month will be charged.

When you meet with your counselor, you should be able to obtain all the reverse mortgage information you require before you make your final decision. It will be nice to have the option of staying in your own home if that is what you desire.

For more information please visit our website dedicated to seniors about the pros and cons of a Reverse Mortgage. You can read more on our Reverse Mortgage Information Website.

Bob Roscoe, Mortgage Marketing Associates, Minneapolis, Minnesota

Fixed Rate or ARM?

Article by Guest Author Charles Kirkendall

HUD reverse mortgages can be a great tool for Seniors that are looking for additional funds for retirement. Through a HUD reverse mortgage, seniors can tap into the equity from their homes without having to make repayments.

HUD Reverse Mortgage Eligibility

Homeowners must meet the following criteria in order to be ligible for a HUD reverse mortgage:

- Homeowner must be age 62 or older.

- The home must be owned free and clear or have a mortgage balance that can be paid from equity.

- The home must be a principal residence.

- The property must be a single-family home, a one-to-four unit dwelling with one unit occupied by the applicant, a manufactured home (mobile home), or a unit in condominiums or Planned Unit Developments.

- The property must meet minimum property standards.

Homeowners that qualify can receive payments in a lump sum, on a monthly basis, or on an occasional basis as a line of credit. At a later date the payment options can be restructured if circumstances change. These funds can be used for any purpose: home repair, vacations, healthcare costs, or daily living expenses.

Guidelines on HUD Reverse Mortgage Amounts

The amount that can be borrowed on a HUD reverse mortgages is determined by the following criteria:

- The borrower’s age - The older the borrower the more that can be borrowed against the value of the home.

- The loan interest rate - Obviously the lower the interest rate the more that can be borrowed.

- The home’s value - There is no hard limit for home value to qualify for a HUD reverse mortgage, but the amount that may be borrowed is capped by the maximum FHA mortgage limits for an area. This means that owners of a high priced home can’t borrow any more than the owners of homes valued at the FHA limit.

There are no asset or income limitations on borrowers receiving a HUD reverse mortgage.

Unlike ordinary home loans, a HUD reverse mortgage does not require repayment as long as the home remains the borrowers primary residence. When the home is sold the Mortgage company recovers their principal, plus interest, and the remaining value of the home goes to the homeowner or to his or her survivors. Should the sales proceeds not cover the amount owed, HUD will pay the mortgage company for any shortfall.

The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage. Typically the mortgage company pays for this insurance and charges it to the borrower’s principal balance. This FHA reverse mortgage insurance can make HUD’s reverse mortgage program less expensive to borrowers than private programs without FHA insurance.

About the Author

Charles Kirkendall writes about reverse mortgages and other Senior financial issues. Visit HUD reverse mortgage for more information and resources on reverse mortgage issues.

Bob Roscoe, Mortgage Marketing Associates, Minneapolis, Minnesota
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