Reverse Mortgages: A Financial Option for Meeting Life’s Expenses

By Stephen J. Eastman

There are many factors in today’s society that have made reverse mortgages more popular. People are living longer than ever before and spending more time in retirement. In this economic downturn, many people have underestimated their retirement savings needs. However, the most important factor in the reverse mortgage’s popularity is that the costs to originate a reverse mortgage have come down significantly.

Reverse Mortgages 101:

So, what exactly is a reverse mortgage? Simply put, it’s a loan that allows homeowners 62 or older to tap into the equity that’s been built up in their home. A reverse mortgage has no income or credit requirements, and there are no monthly payments. It is called a “reverse” mortgage because the lender makes a payment to the borrower, instead of the borrower making payments to the lender. The homeowners can then use the proceeds in a variety of ways – such as covering monthly living expenses, paying off an existing mortgage, making improvements to the home or paying for prescriptions and healthcare.

Lower Up-front Costs with the new Saver reverse mortgage:

In October, 2010, the Federal Housing Administration, which insures virtually all reverse mortgages, introduced the “Saver” reverse mortgage. This new type of reverse mortgage has lower up-front costs, as compared to the standard reverse mortgage. Some lenders have completely eliminated their origination fees, and the mortgage insurance premium has been reduced. With the Saver reverse mortgage, homeowners can save thousands of dollars in closing costs, depending on the value of the home. This new type of reverse mortgage is attracting the attention of more affluent homeowners, who may now elect to set up a Line of Credit through the Saver reverse mortgage, instead of through a conventional Home Equity loan.

Like all reverse mortgages, the new Saver is a way for homeowners 62 and older to use their equity to fulfill their needs. And like all government-insured reverse mortgages, the homeowner owns the home, not the bank. The borrower elects how they wish to receive their cash: as a monthly payment, in a line of credit, as a lump sum, or any combination of those. No matter how the cash is received, it is considered tax-free. The loan is due, with interest, when the borrower dies, sells the home, or moves out for longer than 12 months.

An Informed Decision:

The best decisions are informed ones. If you’re interested in learning more about the new Saver or other reverse mortgage options, Stephen Eastman, Reverse Mortgage Specialist. You may reach Steve at his office in Gray, Maine at 800-416-4748.