Q: Mr. J., I have read all of your articles, and several of your reverse mortgage columns concerning many different aspects of those mortgages. My question is (which you haven't addressed) should you finance your retirement with a reverse mortgage? I would appreciate an answer as soon as you can. I know you receive many inquires and probably have a back log of questions. However, this is very urgent-please answer as soon as you possibly can!
- Ben & Emily P.
A: Ben and Emily, you left me no way of communicating with you any earlier than my column. So I hope this comes in time for-whatever?
Despite turmoil in mortgage markets, reverse mortgages remain a viable way to raise cash. Unlike a standard mortgage, you don't have to pay back a single penny of a reverse mortgage as long as you live in the house.
With a reverse mortgage, you borrow against the equity in your house, often taking a line of credit or a lump-sum payment. In 2000 about 6,000 loans were originated. The number has increased to over 100,000 now.
Part of the increasing appeal can be attributed to the financial environment in general. The bear market and continuing low interest rates have decimated many retirement portfolios and left seniors with less income than they had expected. In addition, attitudes about reverse mortgages have changed.
Now many more middle-income homeowners see reverse mortgages as a routine financial-planning tool. The mortgages are particularly valuable for people who can pay regular expenses but require help with special needs, such as home health aid, that may make it possible for the borrower to continue living in his/her home.
How the loans work
A reverse mortgage is a loan against a home. The home owner has several options for how to receive the cash. You can require a line of credit, a lump sum or regular payments for up the length of time you live in the home. About 90 percent of all reverse mortgages are originated under the Home Equity Conversion Mortgage (HEMC) program of the US Department of Housing and Urban Development (HUD). Other loans come under programs from financial Freedom Senior Funding Corp., a private lender. The HECM loans require paying mortgage insurance premiums, while the other lenders do not require mortgage insurance. But HECM is more popular because it enables people to borrow bigger sums.
The amount of money you receive depends on the value of your equity in the home and the age of the youngest borrower. Older people can borrow more because their life expectancies are shorter and there is less chance that the loan will eventually exceed the value of the house. The exact knowable amount also depends on where you live.
For a guide on how much you cam borrow, go to the reverse mortgage calculator at www.rmaarp.com.
Next week, I will give example and the payments to you. Stick with me, it will be worth it.
Have a real estate question? Write, call, fax or e-mail:
Bob Jeffries, Realtor,
Century 21 Birchwood Realty, Inc.
4040 Del Prado Blvd., Cape Coral, FL
239-549-5724 Office
239-542-7760 Fax
