Many senior homeowners, age 62 or older, are facing a distressing dilemma. They do not have enough money to meet their monthly living expenses, yet they have significant equity in their homes. Many of refinancing mortgage homeowners actually own their property outright. The most apparent solution to this problem is for the homeowner to secure a Reverse Mortgage, which allows them to access the equity in their homes to fund those living expenses. Yet, many Seniors are reluctant to pursue this strategy? Why is this?
The reality is that the Reverse Mortgage program has many myths and misconceptions associated with it. This article will address the most common of these myths and fully explain the benefits and ramifications of a Reverse Mortgage.
First, many believe that once they secure a Reverse Mortgage, they give up title to their home. This is not true at all; the homeowners retain title to their home, in their name. The only thing that changes is that they now have a mortgage. This difference with a Reverse Mortgage is that there is no repayment required until one of three life-changing events occurs in the homeowner's life. These three events are: The homeowner, or the homeowner and their spouse both pass away; the homeowner moves out of the property permanently (typically, for more than 12 months), or the property is sold. In the case of the homeowner(s) passing away, those that handle the decedent's estate simply sell the home as normal, and in that process refinancing mortgage the balance of the mortgage.
Second, many believe that they will eventually owe more than their home is worth if they secure a Reverse Mortgage. This is not the case at all. The Reverse Mortgage program has a built in feature that prevents the mortgage balance owed from ever being more than the value of the home, even after normal selling expenses are incurred. This feature is a form of Mortgage Insurance, and is backed by the Department of Housing an Urban Development's (HUD) Reverse Mortgage program. In reality, a senior homeowner age 70 will only be able to access approximately 60% of the equity in their homes through a Reverse Mortgage, insuring that even with the mortgage interest that accrues on the loan balance, they will never owe more than the home is worth. In the most extreme circumstance, one where real estate prices drop dramatically, and the value of the home were to decline, this insurance would protect the homeowner or their heirs from any shortfall when paying off the balance.
Third, many homeowners believe that the cost of securing a Reverse Mortgage outweighs the benefits it can provide. The reality is that the costs associated with a Reverse Mortgage are higher than conventional financing, equal to about 2% of the appraised value of the home, or the FHA maximum loan limit in effect in that area (whichever is lower), plus normal processing and closing fees that vary from state to state. However, if you consider the impact that a Reverse Mortgage can have on the homeowner's quality of life or the security that having access to their home's equity can provide, and if you think about spreading the initial cost over the remaining years of the homeowner's life, it is not a great amount. It is true however that if the homeowner has plans on selling the property within a few years of obtaining their Reverse Mortgage, then it may not make sense.
Finally, many Senior homeowners do not think they have the ability to qualify for this program. Nothing can be farther from the truth. There only two basic qualifications for securing a Reverse Mortgage. First, all owners must be 62 years of age or older. Second, they must reside in the property as their primary residence. That is all. There are no income requirements. There is no minimum credit or credit score requirements. There are no maximum age requirements. You simply must be 62 years of age or older and occupy the property as your primary residence. That's it. Simple.
Hopefully this clears up many of the myths and misconceptions associated with this life-changing program. The popularity of the Reverse Mortgage program continues to increase year by year as homeowner's live longer.
Brent Burns is a Mortgage Planner in Crystal Lake, Illinois, in the northwest suburbs of Chicago. He has been designated a Certified Residential Mortgage Specialist (CRMS) by the National Association of Mortgage Brokers and a Certified Reverse Mortgage Counselor by the Senior Lending Network. You can find out more about Brent and his Mortgage Planning Team at his website, http://www.McHenryCountyHomeLoans.com Brent specializes in providing Senior Homeowners with equity extraction solutions that secure their income, improve their lifestyle, and balance their financial future. You can contact Brent directly at 815.477.5545
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