Many seniors have enjoyed substantial appreciation in the value of their homes. The question today is: What are we going to do with the equity that has built up in our house over time? If you think about it for just a few minutes, you will discover there are several attractive options for how an older person can take advantage of her/his cash equity in their house. For example, one option is to sell the old family homestead and move into a smaller more accessible house, apartment or rental housing in a neighborhood of your choice, and then invest the extra cash from the sale in secure investments.
Or, if you are happy with your present house and want to stay there, another option is to apply for a federally insured reverse mortgage and use the cash to significantly increase your quality of life and ensure a more satisfying and secure old age. The cash available from a reverse mortgage can be used to repair and renovate your house or organize and modify the several rooms where you spend the most time so they are appropriate for aging in place. Depending on your health and circumstances, you might prefer to use the extra cash to hire help around the house such as a housekeeping service, someone to care for the lawn and garden or a handyman who will repair leaky faucets, running toilets and squeaky doors. Paying to have more fun is another option where cash from a reverse mortgage would be useful. It is never too late to sign up for dance classes, taking a foreign language course or planning a trip with your grandchildren. The possibilities are endless, especially if you desire to maintain an interest in living a fulfilling life.
Federally Insured Reverse Mortgages
Most of the public is vaguely aware that a “reverse” mortgage is a loan against your existing home. But the public is only slowly beginning to understand that a federally insured reverse mortgage is a new and very useful financial instrument for older homeowners. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. And perhaps most important, you do not have to pay back a reverse mortgage for as long as you live in the house. The cash you obtain from a reverse mortgage can be paid to you in several ways:
· All at once, in a single lump sum of cash
· As a regular monthly cash advance
· As a “line of credit” account that lets you decide when and how much of your available cash is paid to you or
· As a combination of these payment methods.
Federally insured reverse mortgages are available regardless of your current income or assets The amount a person can borrow depends on their age, the current interest rate, and the appraised value of their home. Generally, the more valuable your home is, the older you are, and the lower the interest, the more you can borrow. The money you receive from a reverse mortgage can be used in any way you wish:
• To pay off bills or credit card debt
• To make home repairs
• Maintain your independence
• Travel and learn
Some Essential Facts
The best and most secure reverse mortgage is the Home Equity Conversion Mortgage (HECM). The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), insures HECM loans. The FHA tells lenders how much they can lend you, based on your age and your home’s value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations. HECM loans generally provide the largest loan advances of any reverse mortgage. HECMs also give you the most choices in how the loan is paid to you, and you can use the money for any purpose. Although they can be costly, HECMs are generally less expensive than privately insured reverse mortgages. Other reverse mortgages may have smaller fees, but they generally have higher interest rates. On the whole, HECMs are likely to cost less in most cases.
Unlike ordinary home equity loans, an FHA reverse mortgage does not require repayment as long as the home is the borrower’s principal residence. Lenders recover their principal, plus interest, when the home is sold. If any home equity remains after sale, the remaining value of the home goes to the homeowner, estate or heirs. You can never owe more than your home’s value.
To be eligible for a FHA insured reverse mortgage :
• You and any other current owners of your home must be aged 62 or over,and live in your home as a principal residence.
• Your home must be a single-family residence in a 1- to 4-unit dwelling, a condominium, or part of a planned unit development (PUD).
• Your home must meet HUD’s minimum property standards, but you can use the HECM to pay for repairs that may be required.
•You must discuss the program with a counselor from a HUD-approved counseling agency.
For more information, contact:
U.S. Department of Housing and Urban Development: http://www.hud.gov/buying/rvrsmort.cfm