A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free income, without having to sell their home, give up title to it, or make monthly principal and interest payments.
Reverse mortgages have been available for decades. The first reverse mortgage was instituted in 1961 to Nellie Young in Portland, Maine by Nelson Haynes of Deering Savings & Loan. Haynes designed this very unique type of loan to help the widowed wife of his high school football coach to stay in her home after losing her husband.
Throughout the years the reverse mortgage has undergone significant changes through legislative actions in response to consumer needs and to assure ethical business practices. Today’s reverse mortgage is not the same finance program that existed 20, 10 or even 5 years ago.
The timing for these changes is significant for the following reasons:
- People are living longer and may be at risk to outlive their retirement savings.
- Record low returns on CDs and other investments.
- Baby boomers are reaching their retirement years. There is an estimated 10,000 people turning 62 every day.
- Healthcare including long-term care insurance and other expenses are increasing faster than income for seniors.
- Seniors are looking to enjoy active life styles in their retirement years.
About the HECM
There are a many proprietary reverse mortgages available through private institutions, but only one family of reverse mortgages is backed by the US government. The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program, which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security.
For those 62 or older and wish to eliminate principal and interest payments, buy a new home, supplement income, or pay for healthcare expenses including long-term care insurance – a reverse mortgage may be a worthwhile consideration.
About the HECM for Purchase
HECM for Purchase is a type of reverse mortgage within the family of FHA’s Home Equity conversion Mortgage. It allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage resulting in no principal or interest payments for as long as the last borrower remains in the home.
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
This program also allows seniors to purchase a home that is otherwise outside of their affordability – with no monthly principal or interest payments.
- 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
- Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD- approved HECM counselor
- Single Family Homes
- Triplexes up to 4 units
- Condos (Must have FHA Condo Approval)
When does a reverse mortgage come due?
When none of the borrowers of a HECM, including a HECM for Purchase, are remaining in the home, the loan is due, or you may choose to pay off the loan early. The family or heirs can sell the house or refinance the mortgage as is the case with any other mortgage. Today’s FHA insured reverse mortgage offers protections and safeguards for seniors and their heirs like never before.
Seek an Experienced Lender!
Properly used and for the right purposes, a reverse mortgage can be one of the greatest financial tools for those 62 years old and older in their retirement planning and management years. However, like all powerful tools, it is strongly recommended that consumers work with an experienced lender who specialized in the many facets of reverse mortgages.