What Is A Reverse Mortgage And What Are Its Benefits?

More and more senior citizens are turning to reverse mortgages. The continually escalating home values and growing consumer acceptance have fueled the growth of reverse mortgages by 77 percent. According to the most recent federal fiscal year data, reverse mortgages have increased to 76,351 from 43,131 the prior year. For the uninformed, this data is a revelation. But the reverse mortgage and the benefits it offers have been enjoyed by retirees for quite some time now.

The reverse mortgage is a special home loan targeted specifically to homeowners aged 62 and above. This loan enables retirees to borrow against the equity in their home to receive cash without having to sell it, make new monthly mortgage payments or surrender the title of their property. With reverse mortgages, borrowers receive money from the lender and generally don’t have to repay it for as long as they live in their homes.

To qualify for most reverse mortgages, borrowers must be at least 62 and currently live in their home. The loan amount borrowers are entitled to is dependent on the borrower’s age, current interest rates and the home’s location and value. Borrowers may use the loan proceeds for any purpose. The proceeds can be taken out as a lump sum, fixed monthly payments, line of credit (where allowed), or a combination. In addition, the home does not have to be owned free and clear to qualify for a reverse mortgage.

The three basic types of reverse mortgage are: the single-purpose reverse mortgages, offered by some government agencies and nonprofit groups; the Home Equity Conversion Mortgages (HECMs), federally-insured loans backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, private loans backed by the companies that develop them.

Reverse mortgages offer many benefits:

• Many reverse mortgages have no income restriction requirements.
• Reverse mortgage loan advances are not taxable, and usually do not affect Social Security or Medicare benefits.
• Borrowers can continue receiving tax-free income as long as they remain in their home.
• Unlike traditional home equity loans or second mortgages, reverse mortgages do not require repayment until the borrower permanently moves out of the home, sells the house, or dies.
• Reverse mortgage lenders can only require a home's value for repayment (both homeowner and lender are insured against loss).
• Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.
• All reverse mortgages are non-recourse home loans. This means that there is no personal liability to the borrowers or to the heirs.
• With reverse mortgages borrowers can never ever be forced from their homes.

Homeowners considering reverse mortgages should shop around and compare options and terms. They should also seek out counseling services from certified housing counselors before they choose a lender. By being informed on the ins and outs of reverse mortgages, homeowners stand a better chance of getting a good deal.

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