Reverse Mortgage Loans

Article by Anthony Seruga and Yolly Bishop

If you’re a senior citizen and you own a home, chances are very good that you’ve been approached about the advantages of a reverse mortgage: stay in your home, use the equity, and never make a loan payment even though you’re spending the cash. It sounds too good to be true, doesn’t it?

For the right person, though, it’s not. A reverse mortgage on your home real estate is perfect for senior citizens who don’t intend to leave a house to heirs, who would prefer to use up cash in a house before being forced to use it to pay for late-life medical bills, and who want to get the most out of their golden years. All others should consider disadvantages as well as the advantages carefully.

How Reverse Mortgages Work

Reverse mortgages are federally insured private market loans designed specifically for senior citizens. They allow you to effectively sell the equity in your home to a bank or mortgage company while still living in the house until you no longer need it for whatever reason. If the home is owned by a married couple, the mortgage should be in the name of both to ensure that when one dies or must go to a nursing home, the other can still live in the house. Remember, the provision that you live in your house until you must leave is only open to whoever has their name on the mortgage.

Unlike a home equity loan, with a reverse mortgage you make no payments. Instead, the house reverts to the bank’s possession when you leave it. You never owe more on it, even if the value of the house drops; however, any equity that builds up in your house or that is still there after you take out the reverse mortgage still belongs to you and your heirs. All you have to do is remain living in it, and keep up with the taxes and insurance.

The real estate in question must be a single-family dwelling, and you, the senior citizen must live in it as your primary residence. If it’s a condo, it has to be FHA approved. Some manufactured homes are eligible as well. The amount you can get varies, depending on your age, the house value or FHA mortgage rates, and current interest rates. If you’re older, the house is worth a lot, and interest rates are low, you’ll get a higher loan.

The listed borrower must be at least 62 years old. He or she does not have to have any income.

Never use a service that charges you to find a reverse mortgage lender. You can find this information for free through HUD. You also don’t need an income at all.

You can get your reverse mortgage money in one of five different payment structures: tenure (equal monthly payments for as long as a borrower lives in the house), term (equal monthly payments for a fixed number of months), line of credit, or modified tenure or term, which blends tenure/term and line of credit until the reverse mortgage money is exhausted.

Problems With Reverse Mortgages

If you get a reverse mortgage, there are some important things you need to watch for. Even though the HUD may have recommended a lender to you, some unscrupulous companies have been taking advantage of senior citizens. You may find an inordinate amount for closing costs. Interest may compound at a higher rate or more frequent rate than you understood. There may also be monthly charges and finance charges against the loan, which will come out of your house’s leftover equity. If you have heirs, the equity left after the loan is paid – which may have been half or less of your home’s equity – may be negligible or non-existent. The bank will make money on this loan.

There are other reasons to not get a reverse mortgage. If you are a senior citizen but your wife or husband is not old enough, they may not be able to be listed as a borrower. That means that when you die or go to a nursing home, your spouse no longer has an interest in the home and the bank will either evict them or give them the option of converting the reverse mortgage to a regular mortgage.

If for any reason you think you may be leaving your home before you’re ready – due to eminent domain claiming real estate in your area, for instance – or if you want to buy a new home, it’s probably not a good idea to take out a reverse mortgage.

Think carefully and weigh all your options before you sign the dotted line. It’s wise for any senior citizen to ask an independent professional – a realtor or a lawyer – to take a look at the contract before signing off on a reverse mortgage.

About the Author

Tony Seruga, Yolanda Seruga and Yolanda Bishop of Maverick Real Estate Investments, Inc. work with builders, developers and other players in the commercial real estate industry to acquire and develop properties. They use progressive investment strategies that have proved extremely profitable. In addition to their own deals, they teach both seasoned and inexperienced investors how to be big players in the game. Visit the website for more info.s