Best Mortgage

A reverse mortgage (known as lifetime mortgage in the UK) is a type of loan available to seniors (62 and over in the US), used as a way of converting their home equity (the value of the home, minus the amount of any existing mortgages) into one or more cash payments while retaining ownership of the property (continuing to live there) and avoiding monthly payments. Repayment of the loan is deferred until the borrower is no longer living in the home.
In a typical mortgage, a home owner pays a monthly amortized amount; after each payment, the owner has more equity in the house. After a certain amount of time (typically 30 years), the mortgage will be paid in full and the property released from the debt. In a reverse mortgage, the home owner pays nothing each month and all interest on the debt is added to the lien on the property. If the owner receives monthly payments, then the debt on the house increases each month.
If a house gains significantly in value after a reverse mortgage is taken on it, it is possible to get a second and even third reverse mortgage to borrow against the increased equity that the owner now has in the more valuable house. But, in the United States a reverse mortgage must be the first and only mortgage on the property (if there is an existing mortgage, it will be paid off with some of the proceeds from the reverse mortgage). In the United States, if the property increases in value (and as the mortgagee ages and qualifies for more money), the reverse mortgage may be refinanced to borrow more against the increased equity.
To qualify for a reverse mortgage in the United States, the borrower must be at least 62. The borrower must pay off any existing mortgages with the proceeds from the reverse mortgage and, if needed, additional personal funds. There are no minimum income or credit requirements, and for most reverse mortgages, the money can be used for any purpose. A pending bankruptcy that has not been finalized may, however, slow the process. Some types of dwellings, such as lower-value mobile homes, do not qualify. Before borrowing, applicants must seek HUD approved counseling. The counseling is a free safeguard for the borrower and his/her family, to make sure they completely understand what a Reverse Mortgage is, and what the process of obtaining one is. Reverse mortgages are offered by some state and local governments. These “public sector” loans generally must be used for specific purposes, such as paying for home repairs or property taxes. The majority of reverse mortgages are FHA insured.
The amount of money that an individual homeowner can receive from a reverse mortgage depends on their age, the Federal Housing Administration (FHA) or Fannie Mae (FNMA) appraised value of the home, and the starting interest rate (effective upon closing/finalization of the loan). The location of the home may also have an impact. There is also a type of reverse mortgage for homes valued over the maximum Fannie Mae limit. These are called “cash” accounts, and are proprietary loan products. In a reverse mortgage in the U.S., a borrower can be paid in a lump sum, monthly (payment of advances), through an increasing line of credit, or a combination of all three. The money received (loan advances) are not taxable and do not affect Social Security or Medicare benefits.
The cost of getting a reverse mortgage from a private sector lender exceeds the costs of other types of mortgage loans from such a lender. There is an insurance premium of 2% of the loan and a 2% origination fee in addition to normal closing cost. Thus a $200,000 loan would have $8,000 in costs beyond the normal closing costs, which are typically some thousands of dollars. In addition, there is a monthly service charge of $30 that is usually added to the total amount of the loan.
The lowest cost reverse mortgages are offered by state and local governments. They generally have low or no loan fees and the interest rates are typically low or moderate as well. But, as noted above, they often have many restrictions, and many states don’t have such programs at all.
The most popular type of reverse mortgage in the U.S. is the FHA-insured Home Equity Conversion Mortgage (HECM) which accounts for 90% of all reverse mortgages originated in the U.S. As of December 31, 2005, a total of 195,418 HECM loans had been issued since the program’s inception in 1989. However, program growth in recent years has been very rapid. The National Reverse Mortgage Lenders Association (NRMLA) reports that 55,659 HECM loans were endorsed thru the first nine months of fiscal year 2006, an 83% increase over the 30,404 loans endorsed during the same period in the prior fiscal year.

This entry was posted on Tuesday, August 22nd, 2006 at 12:39 pm and is filed under Main. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.