What the heck is a reverse mortgage?
by Greg Cryns
This is a new fangled
invention that is intended to service older homeowners from age 62 on
up.
What happens is the
homeowner uses a portion of the equity they built up in the
home over the years to
create a tax-free income. The owner does not have to sell the home. He
keeps the title.
The name "reverse
mortgage" applies because the homeowner receives money from the
lender rather than sending money to the lender. The homeowner can use
the money received any way he wants.
This option makes sense
if you need money to cover your bills. Many people use the money to
pay medical bills. The reverse mortgage is often used to pay off an
existing mortgage debt.
You have options on how
to receive the money. 1)lump sum dispersement; 2)fixed monthly
payments that can last as long as you live in the house; 3)line of
credit
There are certain rules
that apply which can limit how much you receive. If you live with your
spouse the payment is based on the age of the younger partner. An
appraisal value is determined for the home and this will impact on how
much you can get. So if you are older and have a lot of equity you
will get more money than if you were younger and/or had smaller
equity.
The house must also
pass some eligibility requirements.
1. a manufactured home
built before 1976 is not eligible for a reverse mortgage
2. the home must be
single or multi family (not commercial)
3. the house can be a
condominium or a townhouse
You can get a reverse
mortgage even if you are still paying on the first mortgage. The new
lender will then be in the first lien position on the property. If the
house is sold, the new lender must be paid off before the sale.
CAUTION
The reverse mortgage
can be very useful to many senior citizens. However, any time you play
with mortgages on you home you must be aware of the risk.
In 2006 alone over
76,000 senior citizens obtained reverse mortgages. This could put a
strain on the HUD system. The FHA insured over 70,000 mortgages in the
HECM program in 2007.
There are few watch dogs that can help
seniors if someone is taking advantage of them in this realm. As we
all know, there are crooks and liars out there especially in recent
years. There is no reason to expect the bad guys to reform themselves.
So, it is wise for anyone getting into a
reverse mortgage to seek advice and help from family members and/or
their financial advisors or lawyer.
Greg Cryns is the owner of Flat Fee Real Estate Guide
Greg Cryns is the owner of Flat Fee Real Estate
Guide - http://www.flatfeerealestateguide.com
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