Versatile Reverse Mortgages Satisfy Broad Range of Needs for Seniors HomeownersWilliam and Beulah Ellis of Vancouver, WA, needed to modify their home to make life more comfortable for Mrs. Ellis after she suffered a debilitating stroke. John and Helen Foy wanted to cruise the Pacific Coast Highway on their Harley-Davidson. What do these two seemingly unrelated stories have in common? Both were made possible by a reverse mortgage.
A reverse mortgage is a unique loan that enables senior homeowners (62+) to convert part of the equity in their home into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.
Over the past few years, tens of thousands of seniors have used reverse mortgages to help generate the cash needed to assist with a wide variety of daily needs. Last year, they helped over 18,000 seniors fund health care expenses, pay for modifications to make their houses safer and more comfortable, or simply to create an income stream that provided additional cash and peace of mind. This year, the industry is on pace to help even more seniors live a more comfortable lifestyle.
“Many consumers assume that they can’t access the equity in their homes without exhausting their monthly budget on new loan payments,” said Peter Bell, president of the Washington-based, non-profit National Reverse Mortgage Lenders Association. “But reverse mortgages enable seniors to turn the equity they have accumulated in their homes into usable cash – as a lump sum, a line of credit or as lifetime payments – that doesn’t require immediate repayment or force them out of the home.”
This versatility appealed to the Ellis’, who used proceeds from a reverse mortgage to add a downstairs bedroom, and the Foys’, who purchased a sidecar for their motorcycle.
Commented Mr. Ellis, “I didn’t want to get another regular mortgage because that would have meant making a monthly payment, so the next logical step was to get a reverse mortgage.”
You Will Never Be Forced Out of Your Home
Borrowers will never, under any circumstances resulting from the reverse mortgage, be forced to leave their homes providing they make their real estate property tax and insurance payments.
Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income (for up to life), or line of credit, or as a combination of monthly income and line of credit. No mortgage payments are due during the life of the loan. Borrowers can use the funds anyway they wish. Borrowers make no monthly payments on a reverse mortgage during its term. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can't exceed the value of the home.
An Antidote to Predatory Lending
As the product has evolved, the reverse mortgage industry has worked hard to create standards to protect consumers from predatory lenders. For example, before borrowers may be obligated to pay any fee, they must meet with an independent reverse mortgage counselor. The most popular lending program is also backed by the US government. The Home Equity Conversion Mortgage (HECM), is insured by the Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Urban Development (HUD).
In addition, the industry’s trade group, the National Reverse Mortgage Lenders Association (NRMLA), has established a Code of Conduct and Best Practices guidelines for lenders. Lenders must adhere to these standards to be members of the association.
“When senior homeowners decide to pursue reverse mortgages as a financial option, we want them to be confident that, if they engage a NRMLA member firm, they will be treated fairly and respectfully,” added Mr. Bell.
To educate consumers about reverse mortgages, the National Reverse Mortgage Lenders Association has created Just the FAQs: Commonly Asked Questions About Reverse Mortgages. This free booklet answers frequently asked questions, provides detailed information on the loan origination process, and so that consumers can know their rights when working with a lender, includes the NRMLA Code of Conduct. To receive the booklet or locate a NRMLA lender in your state, contact NRMLA at 866.264.4466 or by visiting it’s website at www.reversemortgage.org.
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