By now, most folks have heard about reverse mortgages and may have already formed their own opinion about them or for some, they don't know a thing about them and some may not care one way or the other. These opinions could have been formed through various means: someone knows someone who got a reverse mortgage, someone heard about it from a TV commercial or saw their local news station talk about them or they read about it on the internet on in their weekend Home section of their local newspaper.
One thing is for sure, there are no shortages of opinions on reverse mortgages and there are no shortages of definitions of what they are and how they work according to the supposed references noted above. Credible resources such as AARP, the Federal Trade Commission, the National Council on Aging, HUD's website and others give a bird's eye view of the program but are quick to point out that extensive research is suggested and to consider all alternatives while at the same time giving their take on costs and warnings but little about real world uses for the reverse. There are many websites dedicated to reverse mortgages as well including www.omnireversemortgage.com, and there are often articles printed in news resources around the country kicking in their own opinion and looking for "that" story when they aren't doing what AARP and the FTC suggested: do your research use the resources to make a qualified decision.
This article is going to take all of that into consideration using the many capabilities of the reverse mortgage, in an updated fashion.
You just don't stumble on a reverse mortgage. You would most likely have something going on in your own financial situation and life to begin to consider a solution in the first place. Maybe you've been running short on money after paying the bills each month or as they say, "there's too much month left at the end of the money." It's possible that you are still paying for a regular mortgage each month that you took out to put a sunroom on the place 3 years ago when money was cheap and your home value was skyrocketing. Now that payment each month is keeping you from doing more of the things you had dreamed about when you were considering retirement. Maybe you've considered moving from the home and downsizing into something more affordable. That's a smart move in this economic downturn, right? Will you get for your home what you think its worth and even though you may have your eye on a better deal somewhere else, unless you get the right amount for your current home, it may not always be the best solution for someone monitoring monthly cash flow. After prepping and staging your home, paying the real estate sale commission, getting rid of the things you've accumulated over the many years and then going through the moving process, in your 70's mind you, did it all make that much of a difference? Maybe you lost a spouse and were depending on both of your social security checks each month and are now living off of just one fixed income. You have decisions to make and none of them are easy or pleasant.
Right now, cash is king. Pick up the paper, turn on the TV. Banks are not lending money to anyone, including themselves. They're looking for direction from either the Fed or the Treasury to give them incentive to begin to lend again. Maybe it will or maybe it won't but we all have to hope it will come around, but it could and can get much worse before improving. Do you risk being overly optimistic and think it's all going to play out by mid 2009 like I read in one article or could this be the beginning of a long and painful bear market that sees massive unemployment and inflation or hyperinflation where everything costs more, even money. A reverse mortgage allows a homeowner access to that cash, now, in a HUD insured way and it does so without a whole lot of requirements that other programs would require. You don't need a perfect credit score, in fact your credit even taken into consideration, nor is your income or even your assets like with other loans. As long as you and/or your spouse is 62 and have sufficient equity (roughly 45% or more) in your well maintained and typical home you qualify for a reverse mortgage.
As mentioned, HUD insures 95% of all reverse mortgages. There were some so-called, private or proprietary reverse mortgages available but they have all gone by the wayside until the credit markets open up again so there's no telling when or if that will happen again. Because HUD provides the homeowner the capability of converting equity from their home into cash and they guarantee that you maintain title of your home through the entire life of the loan, there are many, and reasonably so, requirements connected to this transaction. FHA, a branch of HUD controls most of these rules and at first glance they are a bit confusing but after you take a long hard look at them you can see it was a very well thought out program or plan designed back in the late 80's. Part of the protection is the security of knowing that the borrower can NEVER owe a penny more than the home's market value. For example, if someone with a reverse mortgage were to use $200,000 of the available cash from the home over the life of the loan and their home was valued at $150,000 at the time of their death, their heirs or estate would not owe the $50,000 difference. They would owe nothing. If the borrower were to decide or had to move into assisted living for medical reasons and the usage of the proceeds exceeded the home's market value, the homeowner would not owe a penny back to HUD or the lender. Conversely, if the home was worth $200,000 and they used $150,000, the heirs would have the choice of paying back the $150,000 or selling the home for market value and after paying a real estate commission they would get all of the remaining money. HUD also ensures that the loan will stay in place and all proceeds will continue to be accessible to the borrower in the event the lender is no longer in business.
There are limits and caps on certain parts of reverse mortgages, all in the spirit of regulation and control and ultimately to ensure the Senior borrower is protected at as many places as possible before, during and after the loan is put in place. The rates, the fees, the values all have either floors or limits, as outlined below:
This is all important information to consider but after digesting it all, most folks are so overwhelmed by all the caps and limits and terms they have to walk away. In fact, it's so confusing to some that it's a perfect excuse to NOT DO IT! It can be argued by other family members, especially children, that it's all a scheme to take the remaining equity from the home and leave nothing behind for the kids. Here's something to think about, an argument could be made that Social Security and Medicare is also confusing but you don't hear about too many folks walking away from either of them now do you? You may not read this or hear this anywhere but it was one of the intentions of HUD to build this program so that it takes some of the pressure off the Medicare and Social Security system without draining other public resources. The Baby Boomer crowd is growing at leaps and bounds and when you combine the Silver Tsunami with a global economic slowdown like we are in the middle of right now, you almost have the perfect storm for reverse mortgages. Stay tuned!