(NAPSI)-If we haven’t heard many heart-wrenching stories of seniors being thrown out of their homes amid the current wave of foreclosures, it may be because of an option uniquely tailored to them: reverse mortgages.
A reverse mortgage allows homeowners ages 62 and older to tap into the equity they’ve built in their homes. But instead of borrowing against a home’s value and owing monthly checks to a bank -– which got countless people, of all ages, in trouble for using their homes as “piggy banks” to finance lavish lifestyles they couldn’t really afford – they make no mortgage payments for as long as they or their spouse remain in residence, and are eligible to receive as much as approximately $260,000 through a program insured by the Federal Housing Administration (FHA).
Many of the 10,000 seniors now taking out such loans each month do so because they’re no longer able to afford the taxes and insurance on their properties. And since the money can also be used to cover basic living expenses at a time when many are barely eking by on Social Security, numerous experts view reverse mortgages as nothing short of a “financial lifeline.”
“Reverse mortgages help keep senior homeowners in their homes while capitalizing on their equity,” explains Jeff Lewis, chairman of Generation Mortgage Company, a reverse mortgage lender that regularly works with the FHA. “They’re discovering how they can be used for any purpose – to supplement retirement income, help fund health care, pay for home modifications and even secure a cash reserve.”
How It Works
While the FHA’s lending limit is currently $417,000, the amount one can borrow is based on factors such as age, interest rates, the appraised value of a home, and the amount of equity you one has in her home. Bearing in mind these factors, say a homeowner is 70 years old, his home is worth $400,000 and he owns it free and clear. An FHA reverse mortgage loan, through an approved lender, would yield that particular homeowner approximately $254,000.
And if you don’t own your house outright? In that case, the lender would calculate the amount of equity in your home and generate a commensurate loan that would be used to pay off the remainder of your original mortgage, still often leaving extra cash to spare.
The Internal Revenue Service doesn’t view this as taxable income and it generally doesn’t affect such federal benefits as Social Security and Medicare. What’s more, the FHA guarantees both the terms of the loan and that borrowers will never owe more than their homes are worth. That applies even if the property’s value has fallen or should the borrowers move or pass away.
The Svecs Of Chicago
Rich and Brigitte Svec of suburban Chicago had lived in their home for 42 years, yet were recently faced with the very real possibility of foreclosure. The problem: Even though their mortgage totaled just $155,000, their home was worth more than $500,000.
Concerned for the couple’s future, an executive at their bank contacted a reverse mortgage professional, who showed them how they could pay off their mortgage – as well as procure a separate line of credit – and still have access to another $80,000 in funds. The entire process was completed within the 30-day foreclosure extension granted by the Svec’s mortgage holder.
“It was the first night in a long time that we were able to sleep soundly without worry,” Rich Svec recalls.
Perhaps adding to their ease: Reverse mortgages contain none of the prepayment penalties associated with variable annuities, long-term certificates of deposit or certain types of lines of credit, says Lewis. “You or your heirs simply pay back the borrowed amount when you sell and leave the home.”
Reverse mortgages can be a smart and affordable way for seniors to tap into the value of their house.
The Mirror urges any homeowner considering a reverse mortgage to solicit professional advice before making such a decision. This article is meant for informational purposes only, and does not reflect our opinion on the efficacy of reverse mortgages.
