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Reverse Mortgage

What is Reverse Mortgage?

A Reverse Mortgage is a special type of loan used by older Americans to convert the equity in their homes into cash. The money from a Reverse Mortgage can provide seniors with the financial security they need to fully enjoy their retirement years.

The Reverse Mortgage is aptly named because the payment stream is "reversed". Instead of making monthly payments to a lender, as with a regular first mortgage, also known as a "forward" mortgage, a lender makes payments to you.

You continue to own your home, hold title to your home and are responsible for maintaining your home when you have a Reverse Mortgage.

The money from a Reverse Mortgage can be used for anything: daily living expenses; home repairs and home modifications; medical bills and prescription drugs; pay-off existing debts; continuing education; travel; long-term health care; purchase insurance annuity products; prevention of foreclosure; and any other needs.

To qualify for a Reverse Mortgage you must be at least 62 and own your own home. There are no income or medical requirements to qualify. You may be eligible for a Reverse Mortgage even if you still owe money on a first or second mortgage. In fact, many seniors get a Reverse Mortgage to pay off a first mortgage.

You can choose how to receive the money from a Reverse Mortgage. The options are: all at once (lump sum); fixed monthly payments (for up to life); a line of credit; or a combination of these options.

The size of the Reverse Mortgage that you can get depends on your age at the time you apply for the loan, the type of Reverse Mortgage you choose, the value of your home, current interest rates and your homes rate of appreciation. In general, the older you are and the more valuable your home, the larger the Reverse Mortgage can be.

The costs associated with getting a Reverse Mortgage include the origination fee, an appraisal fee and other charges similar to those for a regular mortgage. If you choose a government insured loan there is a charge for FHA insurance. All of the costs may be financed as part of the Reverse Mortgage loan.

The money provided to you from a Reverse Mortgage is "tax-free" and does not affect regular Social Security or Medicare benefits. However, the funds received from a Reverse Mortgage may affect your eligibility for certain kinds of government assistance, such as Medicaid or state assistance programs. You should check into this before getting a Reverse Mortgage. Consult with your local Area Agency on Aging (to locate, call 1-800-677-1116) or consult with a tax attorney.

Before applying for a Reverse Mortgage, you must first meet with a Reverse Mortgage counselor. A mortgage lender can provide you with the names of approved counseling agencies in your area. A list of approved counseling agencies nationwide is posted on the Web by the U.S. Department of Housing and Urban Development. The counseling is provided to you free of charge.

The counselor's job is to educate you about reverse mortgages, to inform you of other alternative options available to you given your situation and to assist you in determining which particular Reverse Mortgage product best fits your needs.

In general, counseling sessions are done face-to-face, although telephone counseling is becoming more prevalent.

No payments are due on a Reverse Mortgage while it is outstanding. The loan becomes due and payable when you cease to occupy your home as a principal residence. This can occur if you (the last remaining spouse, in cases of couples) pass away, sell the home or permanently move out.

The home does not have to be sold to pay off the loan. You (or your heirs) can pay off the Reverse Mortgage and keep the home. In any event, the amount owed on the Reverse Mortgage can never exceed the value of the home at the time the loan must be repaid. However, if the home is sold and the sales proceeds exceed the amount owed on the Reverse Mortgage, the excess money goes to you or your estate.

There are many versions of Reverse Mortgage Loans to consider today, including fixed rates, adjustable rates and new products that are currently being designed for the future.

The most popular version continues to be the Federally insured Reverse Mortgage called the FHA Home Equity Conversion Mortgage or HECM. Another major product is the Home Keeper Reverse Mortgage developed in the mid-1990´s by Fannie Mae. This version of the Reverse Mortgage can be used to purchase a home. Also, Jumbo Reverse Mortgage loans have been introduced that allow individuals with high value homes to enjoy the benefits of a Reverse Mortgage loan while accessing a larger portion of their equity than is available under the HECM and Home Keeper products.

The above are excerpts from information provided by the National Reverse Mortgage Lenders Association.