For seniors 62 and older who want to control their financial destiny, a reverse mortgage can be a viable choice.
They're gaining favor with retirement planners and their clients, including the generation of widows whose husbands handled the finances while they took care of the house and kids, as well as women baby boomers - divorced, widowed or never wed - who ran businesses or held down high-powered jobs and managed households.
Using a Federal Housing Administra-tion (FHA) Home Equity Conversion Mortgage (HECM) to augment savings, investments, Social Security or pension income can offer women, who outlive men nearly three-to-one, better odds of financial survival.
It can be a source of funds for at-home care later in life, home repairs or improvements, unexpected expenses, or even lifestyle-enhancing travel or dining out that you don't want to give up.
There is no one-size-fits-all reverse mortgage, and my role as a mortgage banker is to listen to your needs, then outline your options and explain what can be a highly misunderstood loan.
That involves making sure you understand the basics:
- It is a non-recourse loan, meaning you or your heirs can never owe more than the value of your home.
- You continue to own the home and must maintain it and pay property taxes, homeowner's insurance, association fees and utilities.
- You must complete FHA third-party counseling with a HUD-approved counselor before any lender can accept an application from you.
In the Lowcountry, Consumer Credit Counseling of Savannah offers face-to-face counseling in their Savannah offices or by phone. The $125 cost can be paid by the borrower or rolled into the loan.
A Sun City Hilton Head client, a 71-year-old single woman who completed counseling while comparing three lenders before committing to ours, said the counseling reassured her a reverse mortgage was the right choice.
Recent FHA regulations lowered principal limits on HECM loans. After taking the client's application and getting an FHA case number, I encouraged her to wait 60 days, making her eligible for more money once she was six months from her next birthday.
The amount borrowers can get from a reverse mortgage is based on age (for couples, that of the youngest borrower) and the home's value, less any existing mortgages, home equity loans or lines of credit, which are paid off from loan proceeds.
A reverse mortgage eliminates payments and pays you to stay in your house. Payments can be taken as a line of credit, a monthly payment for a set term or for life, or combination of the two.
Payments are tax-free, which helps preserve retirement assets, and no repayment is due until you move, sell the house or die.
Rob Concha is a senior loan officer and reverse mortgage specialist with Goldwater Bank, N.A. firstname.lastname@example.org