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Post 2:
August 2005
Reverse Mortgages Gaining in Popularity
By Nora Dowd Eisenhower, Secretary of AgingA growing number of older homeowners
are turning to reverse mortgages to help meet the challenges of rising
expenses. A reverse mortgage is a special type of loan that allows homeowners
to convert a portion of the equity in their home into cash.
Many older homeowners use reverse mortgages
to meet unexpected medical bills, supplement Social Security or pay
for other expenses. Unlike a standard home equity loan or second mortgage,
repayment is not required until the borrower no longer uses the home
as a primary residence.
The first reverse mortgage was created
in 1989 by the U.S. Department of Housing and Urban Development (HUD).
According to industry experts, 90 percent of reverse mortgages issued
today are Home Equity Conversion Mortgages offered through HUD and insured
by the Federal Housing Administration.
To qualify for a HUD reverse mortgage,
you must be a homeowner, 62 years of age or older; own your home outright,
or have a low mortgage balance that can be paid off at the closing with
proceeds from the reverse loan; and must live in the home. Other restrictions
and conditions may apply. The amount you can borrow depends on your
age, the current interest rate, other loan fees, and your home’s appraised
value.
According to HUD, the lender cannot take
away your home if you outlive the loan, just as long as you continue
to live in the house and stay current on the taxes and insurance. When
you sell your home or stop using it as your primary residence, you or
your estate will repay the loan. Any leftover equity in your home belongs
to you or to your estate.
An advantage of a reverse mortgage is
that loan proceeds do not count as income, so a borrower’s eligibility
for social services is not affected.
Borrowing through a reverse mortgage
is not a decision that should be taken lightly nor is it the right choice
for every older homeowner. Closing costs can be high, partly because
of the fees that pay for federal insurance. Also, industry analysts
warn that reverse mortgages may not be the best option for consumers
who only need access to short-term cash.
You should talk with a trusted financial
advisor about whether a reverse mortgage is right for you. You may also
call HUD toll-free at 1-800-569-4287 to learn the name a HUD-approved
housing counseling agency in your area.
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