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February 2018 Archive

The Rise of the Reverse Mortgage and is it Right for You?

Monday, February 5, 2018


In the past few years, the popularity of reverse mortgages has been on the rise and continues to be sought out as a way to supplement retirement income. As the baby boomer generation reaches retirement age, boomers have built a considerable amount of equity in their homes, upwards of $3.84 trillion in the U.S. Some boomers are finding that the retirement nest egg they built over the years is not enough to live on or will not last long enough. A reverse mortgage is a way to supplement their retirement savings.

What is a reverse mortgage? It is a financial agreement between a homeowner and lender in which the homeowner relinquishes equity in their home in exchange for either a lump sum or regular payments. Unlike traditional mortgages, which decline as you pay down the loan balance, reverse mortgages rise over time as interest on the loan accrues. The loan is only available to seniors 62 years old or older. There are no monthly payments to make, however, the loan must eventually be repaid once the home is sold or the owner passes away. The homeowner may also opt to pay back the loan sooner if possible. An estimated 99% of reverse mortgages offered today are insured by the federal government under the Federal Housing Administration (FHA). Since they are insured by the government, most of these mortgages come with additional benefits that you won’t find from private reverse mortgage products. The department of Housing and Urban Development (HUD) is the agency that manages the product and regulations of the program. As an example, HUD offers counseling to seniors considering a reverse mortgage. HUD also oversees the lenders who provide them.

The requirements to obtain a reverse mortgage are as follows:
1. Must be 62 years old or older
2. Must own the property outright or be paid down considerably
3. Must be a principal residence
4. No delinquent federal debt (i.e. taxes owed)
5. Must have financial resources to pay taxes and insurance
6. Must received counseling from HUD before obtaining a loan.

Types of reverse mortgages:
1. Single Purpose Reverse Mortgage: Offered by local, state and non-profit agencies only for a specified purpose and are not federally insured.
2. Home Equity Conversion Mortgage (HEMC): Insured by the federal government and can be paid out in several ways (line of credit, monthly installment or lump sum). You can also choose between a fixed or adjustable interest rate.
3. Proprietary Reverse Mortgage: Only available on homes with a high appraised value and provided through private lending companies.

Are you required to maintain Homeowner’s Insurance with a Reverse Mortgage? Most lenders require a policy that covers 100% of the replacement cost of the property. If you have valuable personal property, you may also want to consider coverage for your personal items in case they are lost, stolen or damaged. Just as with a regular mortgage, ensure you have a deductible you can afford in the event you must make a claim.

If you are interested in a Reverse Mortgage and need more information or help connecting with the right resources, please contact the Salmon Agency at 407-365-1766.

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