What is a reverse mortgage and how can it help?
(CAPE COD) A Reverse Mortgage [RM] is a financial instrument some people use to pay for assisted living or long term care. Some are regulated by the Federal Government, and generally RM's allow home owners to borrow against their home equity without making payments - the bank pays you. The loan is usually settled as part of the estate.
'Reverse mortgage' is a generic term. There are various ways these loans can be structured, but what we are discussing here is the FHA-insured Home Equity Conversion Mortgage. There were 130,000 of these written last year.
To qualify you must be at least 62 years of age (if married, the youngest must be at least 62), and own your home free and clear or have an existing mortgage balance that can be paid off by the reverse mortgage. The main feature of this program is that you need not qualify for credit to obtain this loan - the house is your collateral.
Additional program requirements include, but are not limited to;
If the program requirements are no longer being met and you want to keep the home, the full outstanding loan balance must be paid. There is no requirement that the home be sold, only that the loan be repaid.
At the present time reverse mortgage loan proceeds are not considered income and will not affect Social Security or Medicare benefits, though it may impact Mom's eligibility for some needs-based programs.
There is risk in reverse mortgages. There are a variety of fees involved. The interest rate is higher than regular mortgage interest rates, and accrues and compounds on itself, accelerating the amount of equity being removed from the home. The 'magic of compound interest' is a good thing when saving, not so good when it works against the value of an asset - your Mom's 'financial dignity' can evaporate before her very eyes..
Reverse mortgage applicants are required to participate in a "consumer education session" with a HUD-approved counselor where the legal and financial obligations are explained and other financing alternatives discussed to help ensure you make the right decision.
REVERSE MORTGAGE COUNSELORS