In this near-frozen credit environment potential borrowers still find most home mortgages tough to get; a major exception is reverse mortgages. Available for homeowners over 62 years of age, reverse mortgages have been representing a growing market for the past decade. Even in this recessionary year, the number of reverse mortgages has grown 4 percent.
Banks, brokers and savings and loans are happy to approve reverse mortgages because the FHA insures them, and so lenders will be repaid even if the value of the house falls below the balance of the loan. Many consumers also find reverse mortgages simpler to qualify for, because eligibility primarily involves a borrower’s age, home value and equity; not their income or credit history.
Earlier this year, Congress raised the FHA’s maximum loan limit considerably, to $625,500 (the amount a borrower actually receives depends on their age and the home value, but cannot exceed that amount) which will remain through 2010. The agency also set tougher standards for those providing the mandatory credit counseling for applicants.
For seniors who want to remain in their homes, reverse mortgages can provide a lump sum, monthly checks, a line of credit, or a combination of these. The loan is repaid when they pass away or move and the house is sold. In the interim, borrowers use the money for various purposes: they pay off their first mortgages and no longer face those monthly payments; they pay down other kinds of debt; they acquire a nest egg for emergencies or money for their everyday expenses; they invest in their houses or in other assets. A lot of people are paying for home modifications. They want to age in place, so they’re getting ramps, stair lifts, a bathroom downstairs so everything’s on one floor, curbless showers, etc. They’re preparing their homes for their long-term care.
Reverse mortgages can be a very useful tool for seniors, but should be handled with care. The FHA insurance makes them more expensive than conventional mortgages from a bank, so they are probably not suitable for short-term uses; ordinary consumer loans, for those who can get them, may prove cheaper. People should consider the long-term consequences, not just their immediate needs; it’s not free money. If you use your house as an A.T.M., you could jeopardize not only your financial situation, but your ability to continue to live in the house.
Visit our FAQ page to find out more about reverse mortgages, or give us a call, on 888-820-2627