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It has been observed that the number of reverse mortgages has risen dramatically in the past few years. Financially - strapped older citizens who want to be able to stay in their houses and still tap the equity potential in it find reverse mortgages an attractive proposition. Since the introduction of reverse mortgages in 1989, many a homeowner has been using the equity in the house to fund current expenses.
How is a reverse mortgage different from a regular mortgage? As the name suggests, reverse mortgage involves 'reverse' payment - from the reverse mortgage lender to the house owner instead of the other way round. Check out pertinent reverse mortgage information.
A reverse mortgage is an excellent opportunity to turn part of the equity in your home into available cash. This becomes tax-free income that you can use for a variety of purposes ranging from repair and modification of the house to healthcare expenses or daily living expenses. A house owner who is 62 years or older is eligible for a reverse mortgage. Houses built after June 1976 are eligible for reverse mortgage financing.
The homeowner gets to live in his house without taking on any new mortgage or giving up the title to the house. It is essential for the borrower to have sufficient equity in the house so as to be able to attract a reverse mortgage lender. A reverse mortgage lender does not lend the complete value of the house. Once the house is appraised, the borrower can avail up to 60% of the equity in the house. This can be availed as:
Single lump sum payment
Lifetime monthly payments
Line of Credit - flexible option that allows you to draw on the reverse mortgage loan proceeds as you need it, up to the available limit
The reverse mortgage lender takes into account the age of the house owner, appraised value of the property and current interest rates to determine the amount that can be given to the borrower. Consequently, an older borrower gets more when he takes a reverse mortgage on his house. The reverse mortgage is valid until the borrowers continue to live in the house. If they choose to live in any other premises, the reverse mortgage falls due after a year of moving out.
When does a reverse mortgage get paid up? During the lifetime of the borrower, no payments need to be made to the reverse mortgage lender. When the house is sold or the borrower moves out or dies, the house is sold and the payment on the reverse mortgage is made. Any excess on the sale proceeds is given to the borrower or his heirs.
Reverse mortgage information
When you take a reverse mortgage, you will need to pay the reverse mortgage lender initial fees for origination, appraisal and mortgage insurance. Some reverse mortgage lenders also charge servicing fees during the term of the mortgage. An interest is charged on the balance outstanding on your reverse mortgage. This is accrued to the total amount. The debt on the reverse mortgage keeps piling on as and when you draw advances on it. Interest paid on reverse mortgage is not tax deductible until the reverse mortgage amount is paid in full.
The Federal Housing Administration (FHA) insures reverse mortgages that are offered by HUD-approved reverse mortgage lenders. Such reverse mortgages are called HECM - Home Equity Conversion Mortgages. They are backed by U.S. Department of Housing and Urban Development (HUD).
It is essential to consult a counselor from a housing counseling agency that is approved by the State. Here, you can get information on reverse mortgage and its implications. Cash advances on the reverse mortgage are not taxable nor do they affect the social security or Medicare benefits of the senior citizens. But a lump sum payment could impact your Medicaid eligibility. Check out the Total Annual Loan Cost (TALC) rates, so that you get to know the annual cost of the reverse mortgage.
The homeowner is still responsible for the maintenance, repair and applicable taxes on the house. Typically appraisal fees generally range between $300-$400. Other fees might include credit report fee, title insurance fee and survey charges. Once you have been given all the information on reverse mortgage, you will receive a Certificate of Borrower Counseling.
It is essential for senior citizens not to resort to reverse mortgages until they have tapped all other retirement funds. It is easy to fall prey to hyped information on leading luxurious lives with reverse mortgages. Using up the equity in the house with a reverse mortgage for non-essentials can leave a person in dire straits when the money is urgently needed. It is unwise to use the reverse mortgage to live beyond your means.