Reverse Mortgage

Reverse morgages can be of three types: single-purpose reverse morgage, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortage, which are known as Home Equity Conversion Mortgages ((HECM), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

It works in this way: Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage program. The program allows homeowners to borrow against the equity in their homes. The borrowers can receive payments in a lump sum, or in monthly basis for a fixed term or for as long as they live in the home, or on an occasional basis as a line of credit. If the circumstances change, the payment options can be restructured.

It does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.

The loan size is determined by the borrower's age, the interest rate, and the home's value. The older a borrower, the larger the percentage of the home's value, that can be borrowed. Of course there is Reverse Mortgage Calculator which estimates the amount you are eligible just entering the year and month you and your spouse were born, how much your house is worth, and the ZIP cod of your location.

If the interest rates, for example are 8.9 percent, a 65-year-old could borrow up to 26 percent of the home's value, a 75-year-old could borrow up to 39 percent of the home's value, and an 85-year-old could borrow up to 56 percent of the home's value. Borrower doesn’t have to prove having any income. The amount that may be borrowed is capped by the maximum FHA mortgage limit for the area, which varies from $81,548 to $160,950, depending on local housing costs. As a result, owners of higher-priced homes can't borrow any more than owners of homes valued at the Federal Housing Administration limit.

This mortgage program collects funds from insurance premiums charged to borrowers. Senior citizens are charged 2 percent of the home's value as an up-front payment plus one-half percent on the loan balance each year. These amounts are usually paid by the lender and charged to the borrower's principal balance. This mortgage insurance makes HUD's program the less expensive to borrowers than any other program run by private lenders without FHA insurance.

Also let keep in mind: This convenient mortgage for senior citizen is available in all 50 states, the District of Columbia, and Puerto Rico but not in Texas. There are more to know: For eligibility for mortgage your home must be a single-family residence in a 1- to 4-unit dwelling, a condominium, or part of a planned unit development, it must be at least one year old and meet HUD minimum property standards. Some manufactured housing are eligible, but cooperatives and most mobile homes are not.

A reverse mortgage must be repaid in full, when the last surviving borrower dies or sells the home. It also may become due if you allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem, or all borrowers permanently move to a new principal residence, or the last surviving borrower fails to live in the home for 12 months in a row because of physical or mental illness, or fail to pay property taxes or hazard insurance, or violate any other borrower obligation.