Advertisement Meanwhile, let’s take a look at a chaotic housing market as it affects some senior citizens. Along with the increased cost of fuel, food and health care, and rising property taxes, some, age 62 and older and on fixed incomes, are feeling financial stress. It may be that a reverse mortgage is a viable option.
In simple terms, a reverse mortgage is a home equity loan that allows you to borrow against the value of your primary residence without having to incur a monthly payment.
Each homeowner’s situation is different. Don’t take this step without doing your homework. It’s important to involve your family members in the research process to ensure what you are doing will enhance your quality of life and bring you financial peace of mind.
First, talk with an approved reverse mortgage lender (any entity approved by the U.S. Department of Housing and Urban Development). This can be done over the phone or in person. Sitting down with a lender who specializes in reverse mortgages will help you decide what best fits your long-term financial needs. Also, AARP is well-versed on this subject (www.aarp.org).
To apply for a reverse mortgage, you’ll learn that there are no income (and very few credit) requirements. But the outstanding mortgage must be paid off with proceeds from the reverse mortgage. The amount available to a senior citizen is set in formulas established by HUD considering the youngest borrower’s age (in cases of more than one person on the title), value of the home, and the
current interest rate (now under 4 percent for an adjustable rate, about 6 percent for a fixed rate). Generally speaking, from 50 to 85 percent of the home’s value is available depending on these three factors.
How are payments made to the homeowner? After all liens are paid in full at the closing, the
senior citizen has complete control on future disbursement of funds.
For instance, a monthly disbursement may be chosen to help improve the monthly cash-flow situation.
According to Michael J. Odden, vice president and state mortgage manager with M&I Bank in Madison, the most utilized option is line of credit (i.e., funds as needed). Even after the closing, a senior citizen can change the manner of how the reverse mortgage proceeds are available and paid out.
Odden said, “Our seniors are facing some extraordinary financial stress. Most have a desire to stay in the home that they are comfortable in. By working with seniors, and encouraging family-member participation, a plan can be crafted to address stress. It is important to educate seniors on options available and work with them at their pace to achieve their goals.”
What if a homeowner with a reverse mortgage should sell the home? Odden explains: “The senior citizen would have to pay back the amount borrowed plus the accumulated interest. Remaining proceeds would go to the home owner.”
While a reverse mortgage is not for everyone, says Odden, “it certainly makes sense.” For whatever reason a huge amount is owed on a mortgage, and that mortgage payment can be retired. “The worry goes away. This is fulfilling.”
