5 Things to Know Before Signing a Seniors Reverse Mortgage

The popularity of seniors reverse mortgage options have grown, especially in a declining economy.

Originally created by the Federal Housing Administration, this type of mortgage is defined as a mortgage that enables seniors to withdraw equity on their home. The practice is fairly common among seniors, and is often used to pay for unexpected medical expenses, to supplement Social Security checks, and to make home improvements or take vacations.

With the future of Health Care reform and accessibility and availability of long-term care for seniors uncertain, more elderly homeowners are using their home and its equity to pay for medical and health care services. The National Council on Aging provides informative publications regarding these types of mortgages please see ncoa.org that may prove beneficial to many seniors currently unable to pay for long-term health care costs, hospitalization, or nursing home care.

What is a Reverse Mortgage?

The Federal Trade Commission (FTC) defines this as the type of home loan that enables the homeowner to receive money that doesn't have to be paid back until the home is sold, the homeowner dies, or when the homeowner leaves the property. Proceeds of these mortgages are generally tax-free and have no income restrictions.

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reverse mortgages

Three types of reverse mortgages are available:

  • Single purpose mortgages - may be offered by nonprofit organizations, as well as local and state government agencies.
  • Federally insured mortgages - these mortgages are backed by HUD (Department of Housing and Urban Development) and are also known as a Home Equity Conversion Mortgage (HECM)
  • Proprietary reverse mortgages - private mortgage loans backed by individual companies that create them.

Before signing on the dotted line, consumers should take the time to understand what a reverse mortgage is, who qualifies for these types of mortgages and what types of homes are eligible for a mortgage, among other important pieces of information that will help seniors and their family's make knowledgeable and informed choices and decisions.

1.

Can I lose my home if I live longer than expected? In most cases, the simple answer to this question is no. Discuss potential scenarios with your lender to determine guidelines and restrictions. In most cases, reverse mortgage loans don't need to be repaid as long as the senior, or one of the other borrowers listed on the contract continue to live in the house. Keep in mind that insurance and taxes must continue to be paid on the property in order to keep the contract in effect.

2.

How are payments made? Consumers have the option of receiving payments in a variety of ways, including regular monthly payments, or term, which means regular monthly payments for specific period of time. Consumers may also elect to receive a line of credit, or a combination of credit with monthly payments for either unfixed or fixed periods of time. Consumers should know that homeowners are able to change their payment options at any time for a very small fee (about $20.00, according to the FTC).

3.

Is my home eligible? Any type of home may be eligible for this type of mortgage.

4.

How much can I get? A variety of variables will determine how much money you may receive on a mortgage.

Mortgage calculators are available on the Internet, including one at AARP.ORG In addition to accessing online calculators, seniors are encouraged to call their local lenders to determine average rates in their area.

Things To Remember

Seniors 62 years of age or older who are considering a this type of mortgage should also be aware of certain stipulations regarding such loans. The amount owed on these mortgages generally grows over time, and interest is charged on outstanding balances owed every month, according to the FTC.

Take the time to find out whether this type of mortgage offers a fixed rate or a variable rate, which are often linked to the financial index and may rise or fall according to economic conditions.

Consumers should also be aware that a mortgage can literally gobble up all the equity in a home.

Finally, remember that because you're retaining the title to your home, you're responsible for insurance, property taxes, and maintenance expenses. This type of mortgage interest isn't deductible on income tax returns until the loan is partially or wholly paid off.

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