Increasing Use of Reverse Mortgages by Senior Citizens

By now, the concept of reverse mortgages is already familiar territory, for many senior citizens. As restricted cash flow dampens their lifestyle, more and more seniors are finding that reverse mortgage loans are saving them from having to live precariously on the edge. Having to bag groceries just to make ends meet is not fun.

But what is a reverse mortgage? Is it like any other mortgages and loans on the market today?

A reverse mortgage is similar to a regular mortgage, since they are both loans based on houses. However over here the debt is not repaid until the borrower dies or sells the house. The debt gets larger with time before it is paid off.

Reverse mortgage loans are not specifically a niche for senior citizens. However the majority of those who avail of this debt facility are America's gray haired seniors. Feeling the pinch of having to stretch their pension money amidst the rising costs of living makes this loan a strong option. Reasons can be more biological than anything else. With decidedly aged bodies, new income-earning opportunities for seniors are limited.

Financial Planners recommend reverse mortgages for senior citizens who own their homes but are short on cash flow. The loan can be paid to them in a lump sum or through monthly payments.

The amount of the reverse mortgage is determined by four factors: (a) the fair market of the house, (b) the age of the borrower (homeowner), (c) the qualified interest rate of the mortgage, (d) the maximum loan amount of the county where the borrower is based.

The loan given to the homeowner is based on life expectancy. In general, the older you are at the time of the loan, the more money you will get. A 62 year-old, for example could borrow $110,000 through a reverse mortgage if he has $250,000 in equity. On the other hand, a 76 year-old septuagenarian could borrow $149,000 for the same equity amount. Use a reverse mortgage calculator see what you might be eligible to receive.

The Reasons Senior Citizens Should Get a Reverse Mortgage

There are many reasons why senior citizens are choosing to convert their home equity into cash through reverse mortgages. Although it still is debt that needs to be repaid sooner or later (more on "later" in this case).

For some, the needs are very real. They may have stopped working, but seniors still have bills and debts to repay. Because of their stage in life, chances are they also need to maintain their long-term care needs, including expensive prescription medications.

Some seniors even need reverse mortgages to pay off high property taxes. In fact, many senior citizens have been saved from having their homes foreclosed or having to file for bankruptcy because they took out a reverse mortgage loan.

Still, some seniors take out reverse mortgages for the retirement lifestyle. They use the money supplied by the loan for traveling, improving their homes, or planning their estate for their loved ones. In some cases they take out a reverse mortgage to help their grandchildren through college.

Whatever the reason, it doesn't preclude seniors from seeking a competent financial adviser who knows the ins and outs of reverse mortgages. Math calculations on this mortgage can get very complicated.

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Erick B. Strobel 
Direct:  970/412-5180

Home Lender * Mortgage Loan Officer  * Gold Star BBB
Strobel Financial LLC  Powered by  MAC5 Mortgage
NMLS #199325  *  225 Union Blvd. Ste 350 Lakewood CO

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* Average Dollar Cost; Benefits of a Reverse Mortgage *

     A reverse mortgage may also help seniors improve their overall portfolio returns over time. Many of us have heard about the benefits of dollar cost averaging while saving for retirement. The concept is based on a simple principle: If you invest a set amount in regular intervals throughout your working life, you'll invest more of your funds at a lower average cost as the market moves up and down. In retirement, when taking systematic distributions from a retirement account, dollar cost averaging works in reverse, meaning you may withdraw more funds at lower values by selling more at lower prices. Assuming retirement savings are invested in the equity markets, one way to help avoid this phenomenon is to strategically use a reverse mortgage to take home equity distributions in lieu of retirement distributions during years following very low or negative returns in the equity markets. This gives your retirement savings a chance to rebound in future years when equity market gains return.

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     Reverse mortgage originators are well positioned to work in local communities and partner with financial planners to provide education on the benefits of a reverse mortgage. Remember that as a reverse mortgage origination professional, you are the expert on these products, and financial planners will need your assistance in determining whether a reverse mortgage fits into an individualized client financial objective or retirement plan. We are seeing more and more clients being referred by financial planning professionals, and this trend will likely continue as more baby boomers enter their retirement years. Please remember to seek detailed advice from a tax professional or accountant as necessary.  Keep in mind that you want to work with reputable, fee-based financial planners and work with a reverse mortgage lender who has well-designed policies, procedures and the regulatory guardrails to help protect the client, the professional financial advisor and the reverse mortgage originator.

REVERSE MORTGAGE (HECM) LOANS:

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If you are a homeowner age 62 or older and have paid off your mortgage or paid down a considerable amount, and are currently living in the home, you may participate in FHA's Home Equity Conversion Mortgage (HECM) program.  The HECM is FHA's reverse mortgage program that enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both.
You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
How the Program Works
There are many factors to consider before deciding whether a HECM is right for you.  To aid in this process, you must meet with a HECM counselor to discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM and repaying the loan. Counselors will also discuss provisions for the mortgage becoming due and payable.  Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your specific needs. You can search online for a HECM counselor or call (800) 569-4287 toll-free.
There are borrower and property eligibility requirements that must be met.  You can use the listing below or a reverse mortgage calculator to help you see if you qualify. If you meet the eligibility criteria, you can complete a reverse mortgage application by contacting a FHA-approved lender.  You can search online for a FHA-approved lender or you can ask the HECM counselor to provide you with a listing.  The lender will to discuss other requirements of the HECM program, the loan approval process, and repayment terms.
Borrower Requirements
You must:

• Be 62 years of age or older
• Own the property outright or paid-down a considerable amount
• Occupy the property as your principal residence
• Not be delinquent on any federal debt
• Participate in a consumer information session given by a HUD- approved HECM counselor

Property Requirements
The following eligible property types must meet all FHA property standards and flood requirements:

• Single family home or 2-4 unit home with one unit occupied by the borrower
• HUD-approved condominium project
• Manufactured home that meets FHA requirements

Financial Requirements

• Income, assets, monthly living expenses, and credit history may be verified.
• Timely payment of real estate taxes, hazard and flood insurance premiums may be verified.

You can select from five payment plans:

• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit and scheduled monthly payments for as long as you remain in the home.
• Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

You can change your payment plan option for a fee of $20.
Mortgage Amount Based On
The amount you may borrower will depend on:

• Age of the youngest borrower
• Current interest rate
• Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
• Initial Mortgage Insurance Premium--your choices are HECM Standard or HECM SAVER

HECM Costs
You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.
The HECM loan includes several fees and charges, which includes: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) servicing fees. The lender will discuss which fees and charges are mandatory.
You will be charged an initial mortgage MIP at closing, which is either 2% (HECM Standard) or .01% (HECM Saver) of the lesser of the appraised value of your home, the FHA HECM mortgage limit of $625,500 or the sales price.  Over the life of the loan, you will also be charged an annual MIP that equals 1.25% of the mortgage balance.