Home Equity Conversion (HECM) or reverse mortgage is a Federal Housing Administration (FHA) insured program for house rich, and cash poor older homeowners. In 1987, reverse mortgages became available, by US Housing and Urban Development (HUD), which is part of HECM. According to the Department of Housing and Urban Development, end of the fiscal year September 2005, 43,131 government-insured reverse mortgages were issued (record high). Lenders including banks, mortgage companies, and other financial institutions, provide homeowners with monthly payouts, a line of credit or both. These homeowners continue to live at their resident, even beyond the last payment received. When homeowner moves out, the lender obtains ownership of the home. If the lender fails to make scheduled payouts, then FHA will takeover and continue to make payouts to the homeowner. Amount available, depends on the value of the home, and age of the resident, which is determined by FHA appraiser. Any time in the future, if the loan balance becomes greater, then the value of the home (Real estate prices depreciate), the lender cannot seek repayment, from the income, which is a “nonrecourse” loan. Money from a reverse mortgage can be used for anything including: Home repairs, daily living expenses, home modification, medical bills, prescription drugs, payoff existing debts, continuing education, travel, long-term health care, preventing foreclosure, and more.
Requirements for acceptance, of reverse mortgage includes: Home have no mortgage, homeowner(s) be at least 62 years old, and principle place of residence. Repayment of the loan, made only when the homeowner sells or leaves the property. The homeowner or heirs are only entitled to receive any amount, upon the sale of the property, which has to exceed, the amount that was borrowed. Federal Housing Administration requires that a trained housing counselor, explain home equity conversion, to the homeowner and other financial options, before applying to a lender. The homeowner is responsible to pay property taxes, insurance and maintain the home, after receiving lump sum or payments. Income from a reverse mortgage is not taxable. During the time, receiving payments homeowner may leave the residence, up twelve months. Options can be specified for reverse mortgage, which may include: A ten-year conversion mortgage, which provides monthly income, for ten years. After ten years, the loan will not have to be repaid, until the resident sells the home, moves or dies.
Fees and charges are included in a reverse mortgage, which includes: Mortgage closing costs four to five percent of the home value or FHA maximum limit, adjustable interest rate tied to the one – year Treasury rate, small annual FHA mortgage insurance premium, and a monthly lender service fee. These costs can be paid separately or charged against home equity.
Disadvantages and considerations, before applying for a reverse mortgage: Any existing mortgage, have to be paid off, with the proceeds of reverse mortgage. Income received will decrease, the equity value of the home, which may not be utilized in the future, for any emergencies. Interest rates and initial costs (application fees, points, and closing costs) are usually higher, for a reverse mortgage. Payments may affect Supplemental Social Security Income and Medicaid payments. Homeowner should consult with their accountant. Relatives or heirs of the deceased, will not receive any value of the home, unless there is some amount available, after the lender has been paid in full (Including interest and finance charges).
On the Website, American Association of Retired People (www.AARP.com), located is a reverse mortgage calculator. This provides an approximate estimate amounts, for two nationally available reverse mortgage programs. Information which is required: Year of birth, when was your spouse born (or other CO-owner), how much is your house worth, and zip code. Contact Information: AARP Home Equity Information Center 601 E. Street NW, Washington D.C. 2004 Tele: 202 638 2863. Reverse Mortgage Money – Tele: 866 363 1914
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