February 4, 2014 — So misunderstood – that about sums up reverse mortgages as far as we are concerned. Hyped by some unscrupulous providers, this tool for older Americans to tap the equity in their homes for retirement has acquired if not a bad name, at least a lot of cautionary looks by potential customers. That’s why we were very happy to find a government site with some excellent background information about HUD’s Reverse Mortgage Program. The link provides a great deal of helpful facts including:
Who is eligible
If you are a homeowner age 62 or older and have paid off your mortgage or paid down a considerable amount, and are currently living in the home, and are eligible, you may participate in FHA’s Home Equity Conversion Mortgage (HECM) program. The HECM is FHA’s reverse mortgage program that enables you to withdraw some of the equity in your home with limitations or a single disbursement lump-sum payment at the time of mortgage closing.
You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
How the Program Works
There are many factors to consider before deciding whether a HECM is right for you. To aid in this process, you must meet with a HECM counselor to discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM and repaying the loan. Counselors will also discuss provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your specific needs. You can search online for a HECM counselor or call (800) 569-4287 toll-free.
Types of Payment Plans
You may be eligible for one of the following payment plans:
Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term – equal monthly payments for a fixed period of months selected.
Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
Single Disbursement Lump Sum – a single payment at loan closing.
Comments? Have you thought about taking out a reverse mortgage? Share your thoughts and experiences in the Comments section below.