Reverse Mortgages

If you’re 62 or older you can consider unlocking the equity in your home through a reverse mortgage to help you obtain the cash necessary to avoid a foreclosure. Reverse mortgages provide a homeowner with monthly payments or a bulk payment, and the homeowner is not required to pay the money back until they die, sell the home or after it is no longer their primary residence. Money advanced through a reverse mortgage is not taxable and it doesn’t affect Social Security or Medicare benefits.

Three Types of Reverse Mortgages

  1. Single-Purpose: These are offered by state and local government agencies and non-profit organizations. Typically the least expensive reverse mortgage option, these are intended for a single purpose determined by the lender, such as for home repairs or improvements, and they also usually require the borrowers to be of low or moderate income.
  2. Federally-Insured: Backed by the U.S. Department of Housing and Urban Development (HUD) and are known as Home Equity Conversion Mortgages (HECM). HECMs carry high up-front costs but have no income or medical requirements. Counseling from a HUD-approved agency is required before a homeowner is allowed to apply. To find a counselor, call 1-800-569-4287 or search HUD’s Home Equity Conversion Mortgages Housing Counselor Roster. HECMs tend to provide larger loan advances at a lower cost than the proprietary options.
  3. Proprietary: These are creations of private companies who offer them and the requirements vary. Proprietary reverse mortgages, as one example, are suited for a homeowner looking for a large loan advance on a higher-valued home.

Issues to Consider

  1. Shop around and use a counselor to help you compare the options. Closely examine the Total Annual Loan Cost (TALC) rates for each option. TALCs show all itemized costs and the projected annual average cost of a reverse mortgage.
  2. If you are considering a reverse mortgage to help you avoid a foreclosure, the elderly have the opportunity to contact an Area Agency on Aging (AAA) to discuss all available options.  To find an agency near you, you can call 1-800-677-1116 or search the Department of Health and Human Services Eldercare Locator.
  3. Before deciding on any reverse mortgage option, make sure you understand the conditions that would trigger the loan to be due and payable.

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