Reverse mortgages: Retirement's on the house
Among the faster-growing products in the home finance industry
today is a mortgage that puts money into the pockets of borrowers
-- and they don't have to pay it back until after they move out.
called reverse mortgages, but they're not for everyone -- only for homeowners
age 62 and over.
"They are one of the fastest-growing
mortgages in the industry today," says Darryl Hicks, associate
director of the National Reverse Mortgage Lenders Association, or
NRMLA, a Washington-based trade association.
Thanks in part to skyrocketing
home values, seniors are flocking to them to pay for health care,
home repairs or to maintain their lifestyles. Here's why: With a
reverse mortgage they can get tax-free cash without ever having
to make regular monthly payments, and they do not have to pay the
lender back until the property is no longer their permanent residence.
In fiscal year 2004, lenders issued
37,839 home equity conversion mortgages, the federally insured reverse-mortgage
product that accounts for 90 percent of all reverse mortgages. That's
more than double the 18,097 issued in fiscal 2003. In 2002 the figure
was set at 13,049, while in fiscal year 2001 just 7,781 were issued.
The NRMLA says reverse mortgages are up 30 percent through March
and could top 60,000 this year. Congress recently raised the cap
on FHA-insured reverse mortgages from 150,000 to 250,000 after the
Department of Housing and Urban Development warned that originations
of the FHA home-equity conversion mortgages were dangerously close
to the cap figure.
With a traditional mortgage --
also known as a forward mortgage -- or with a home equity loan,
a borrower signs on the dotted line for a large amount of money
and then makes monthly payments for a fixed period of time which
reduces the amount owed. Instead of decreasing, however, in a reverse mortgage, the amount owed increases.
What's more, there are no income
or asset requirements to qualify. Instead, the amount that can be
borrowed is based on several other factors:
The age of the youngest homeowner -- all titled owners have to be at least 62,
and the older the owners, the more they can borrow.
- The appraised
value of the home.
- The county in which the property is located.
- The interest rate at closing.
can receive the money in several ways:
Payments can also be taken in combinations, for example, as a lump
sum to pay off an existing mortgage with the balance taken as a line
of credit or as a regular monthly payment. Free reverse mortgage calculators
are available online from AARP,
- A lump-sum cash payment.
- A specified monthly payment for a fixed term.
line of credit with a fixed limit.
- A line of credit
that increases every year.