Seniors and Reverse Mortgages
When The Best Move is No Move
As the Baby Boomer generation moves into their mid-to-late 60s, the decision whether to downsize and move to a more manageable situation or to stay put and age in place is a big one. Sometimes a change in living situation provides for a more unencumbered lifestyle and more loose change in the pocket - and sometimes staying put is the better choice.
After discussion with a Realtor who is versed in the senior market, the decision to stay where they are may be the best move for the older person. In order to be able to do so with some measure of comfort, a reverse mortgage is the best way to ensure an income while remaining in their home.
The Value of Reverse Mortgages
Reverse mortgages allow homeowners from the age of 62 years and older to convert equity into cash to meet financial needs such as medical costs, supplementing their Social Security, or fixing up their home. By using a reverse mortgage it is possible to make the modifications necessary to the home to make it "user friendly" as they age. One of the questions to ask is how long they intend to stay in the house. The cost of setting up a reverse mortgage is high, so if the seniors are planning a move in three to five years, it won't worth the effort.
With a reverse mortgage, principal and interest aren't due until the homeowner dies or moves out. They are complex mortgages and as such require a considerable amount of investigation and decision making. It is best to consider all options before getting into a reverse mortgage.
A Word of Caution
Ken Scholen, author of AARPs guide to reverse mortgages and the guide available on the National Center for Home Equity Conversion site says, "Even though it's the last thing on your mind, I always encourage people to seriously consider selling and moving." He suggests that people find out how much they would get for their house and how much it would cost to move and either buy or rent another place.
People who are thinking about a reverse mortgage should make sure they're getting all of the government benefits they are eligible for and, Scholen says they should, "talk this thing through with their family if they have the kind of family they can discuss these things with."
"It's a godsend..."
These loans can provide a great financial safety, provided they are handled properly and with care. They can be used to provide home improvements, like putting in ramps if necessary or turning downstairs dens into bedrooms. The money can be used to ease expenses or to purchase a new recreational vehicle.
W.L. Pulsipher, president of Ocala, Florida-based American Reverse Mortgage declares, "It's a godsend for seniors, and I say that as a nonreligious person. Where else can you so easily qualify and get free money? And when I say free money, 90 percent of these people are never going to pay this back. They're getting money to use that they have built up in their lifetime, like an IRA or a 401(k)."
How to Get Your Money
About 95% of reverse mortgages are insured by the FHA (Federal Housing Administration). Under the FHA's Home Equity Conversion Mortgage program, borrowers can get their money in one or a combination of ways: as a lump sum; as a specified amount every month over a fixed number of years; as a specified amount every month until they either die or move out of the house; and as a line of credit that grows at the same place as the interest rate. That means that a $10,000 line of credit at 6% this year will grow to $10,600 next year.
Criteria for Borrowers and When It's Paid Back
The criteria used to determine the amount available to borrow is based on the borrower's age - if a couple is borrowing, it's the age of the younger borrower - the home's value, the interest rate and how the money is taken out. The older the borrower and the lower the interest rate, the more cash the borrower has access to. The loan doesn't have to be repaid until the last borrower is dead or moves out of the house. Usually the loan is repaid through the proceeds of the sale of the house and the heirs have a year to repay the loan after the death of the borrower. During that time interest accrues.
