According to the American Association for Retired Persons (AARP), Baby Boomers will turn 65 at a rate of about 8,000 per day for the next 18 years. As life expectancies rise, retired citizens will need more income for a longer period than past generations, and often want to stay in their own home. Reverse mortgages are an option to consider to satisfy these wants and needs.
Reverse mortgages offer many advantages to retirees and their families, but not all reverse mortgages are the same. Since 1999, Northwest-based HomeStreet Bank has offered the Home Equity Conversion Mortgage (HECM) through the Federal Housing Administration to qualified homeowners aged 62 and older. The HECM is a government-insured program that may help a person use the equity in their home to meet their cash needs and remain living there.
Reverse mortgages can be used to tap equity from your current home or to purchase another home. Some reverse mortgages offer a line of credit option that allows the homeowner to withdraw money from their available line of credit at any time. For borrowers who have a standard set of regular expenses, monthly check options are also available. A reverse mortgage is repaid in full when the last living borrower dies, sells the home, or no longer inhabits the home as his or her primary residence.
Above all, it is important to know the facts when considering a reverse mortgage to ensure you and your family are protected. With that in mind, here are some things to remember:
Myth: A reverse mortgage means that my home will no longer belong to me.
Fact: Not true. The homeowner retains ownership of the home. Reverse mortgages may actually help homeowners stay in their homes by helping them reduce their monthly expenses. Once all borrowers are no longer living in the home as their primary residence, the reverse mortgage must be repaid.
Myth: Reverse mortgage loan payments only occur in a lump sum.
Fact: The lump sum loan payment is one of several payment options available to help with cash flow planning needs and budgeting. Depending on loan type and need, borrowers can receive payments as a:
• lump sum
• fixed monthly payment for as long as one of the borrowers lives in the home
• line of credit, or
• a combination of payment options.
The proceeds from a reverse mortgage are not taxed as income and can be used for a wide variety of purposes. However, you should consider the impact that disbursements may have on your eligibility for Medicaid, SSI or other government benefits that are based on need.
Myth: My monthly mortgage payment will increase.
Fact: The monthly mortgage payment actually goes away. The borrower is still required to pay taxes and homeowners insurance, as well as to maintain the home.
Myth: Any lenders who offer reverse mortgages will take advantage of me.
Fact: Not true, but it is important to work with a reputable lender, one who offers a good product such as the FHA’s Home Equity Conversion Mortgage, has a good reputation, takes the time to answer all of your questions, and helps you understand your options and your loan thoroughly.
Myth: All reverse mortgage products are the same.
Fact: Not true. Again, it is important to work with a reputable lender to determine the right option for you. The Federal Housing Administration’s reverse mortgage product (HECM) is a reputable, government-insured product.
Myth: Reverse mortgages are the right decision for everyone.
Fact: Not necessarily. It is important to explore all options before making a decision. In fact, the federal government’s program requires a HUD counseling session before obtaining a reverse mortgage to support making an informed decision.
Myth: I won’t pay property taxes with a reverse mortgage.
Fact: You will still be required to pay your taxes and homeowner’s insurance, just as with any other type of mortgage.
Chris Barnes, who wrote this article, is a reverse mortgage specialist in Pierce County for HomeStreet Bank.