A few years ago, if you had told someone that you had a reverse mortgage, you would have gotten a look that said, “Oh, I’m sorry you had to take one of those.” It was considered a product of the destitute. Today, you are more likely to have a conversation of curiosity. People will want to know what you think about the experience.
It’s true. Reverse mortgages have gone mainstream. They are enjoying unprecedented popularity, and not only among those who “need” the money. Seniors are now using reverse mortgages to help pay for the “wants” in their retirement years. As of 2007 more than 300,000 senior have used the FHA HECM program to tap the equity in their homes. Reverse mortgages are growing by leaps and bounds every year and are now the fastest growing segment of the mortgage industry. Indeed, as education about the real benefits of the reverse mortgage has spread, the informed senior as well as their advisors, have embraced this innovative product.
The reverse mortgage, a loan product that gives homeowners age 62 and over the ability to tap a portion of the equity in their primary residence without having to sell the property or take on a new mortgage payment, is here to stay. Although the reverse mortgage has existed for many years (the first one done in America was back in the 1960’s), the structure and safeguards of the product today have made it an attractive way for many seniors to finance those golden years.
In a nutshell, the reverse mortgage can provide equity to borrowers who qualify for as long as they live in the home. The borrower controls how the funds are taken- either in a lump sum, monthly allowance, line of credit, or any combination of the three. So for example, if a senior wants to eliminate some debt, receive a monthly check, and have some funds in reserve for future needs, the reverse mortgage can satisfy all of these. If there is a mortgage or home equity loan/line on the property, it must be paid off when the reverse mortgage is taken. For many, simply having this mortgage payment “go away” is enough to make a big difference in their monthly budget. If a senior is currently making a home equity loan payment of $300.00 each month, that $300.00 can now be put toward other monthly obligations or expenses such as prescription medications.
The amount of reverse mortgage funds available to a senior homeowner is based on several factors. First, the age of the youngest applicant is used. Of course, the minimum age is 62. In addition, the home value, as determined by an appraisal is taken into account. The location of the property (FHA maximum lending limits vary by county) is another factor Lastly, the current interest rates (depending on which product is selected) is the used in the calculation. These pieces of the puzzle will determine the amount of reverse mortgage proceeds the senior homeowner can take. If there is an existing mortgage or any type of lien, it must be paid in full at the time the reverse is taken. Other than that, the use of the funds is determined by the homeowner. And the funds are tax-free (it’s just equity) which makes the reverse mortgage the best option for many of today’s informed seniors.
Just what do seniors use reverse mortgage funds for? The answer to that question is as varied as the borrowers themselves. Some common uses include medical bills, prescription medication expenses and co-pays, real estate taxes, upkeep on the property, and supplementing current monthly income. With nearly 90% of seniors in our country relying on Social Security in some part to meet monthly expenses, proceeds from a reverse mortgage can meet a real need. These uses for reverse proceeds mentioned here represent “needs” that seniors have. But there are many who are using the reverse mortgage to actually enhance their quality of life during their retirement years.
More and more seniors are taking reverse mortgage proceeds and using these funds for travel, purchasing a motor home, gifts to children, funding grandchildrens’ college education, and charitable giving. Some are even putting this equity to use in the purchase of a vacation property or second home. Home improvement or modifying the home to meet the seniors’ needs is another use for reverse mortgage funds that has increases recently. Instead of moving out of the home and taking a one level apartment for instance, a certified aging in place specialist contractor (CAPS) can be called in and make recommendations on how the home can be modified to allow the senior to remain in the home in comfort.
Clearly the uses for reverse mortgage funds are as many and varied as the seniors themselves. As the program continues to grow in popularity, more and more ways to put that stored up equity to good use are sure to evolve. One thing is for certain, the reverse mortgage is here to stay and that is good news for both seniors and their families.