Real estate: Is reverse mortgage right for you?
By Linda Goodspeed / Daily News Correspondent
Friday, May 13, 2005
A mortgage with no monthly payments? A mortgage that actually pays YOU monthly payments?
Sound too good to be true? If you are age 62 or older, own and live in your own home, you may be able to qualify for a reverse mortgage.
A reverse mortgage is a federal program designed to help seniors with low incomes and lots of equity in their homes ('cash poor; house rich') tap some of that equity to help them remain in their homes and improve their cash flow. Seniors can take the money in a lump sum, monthly payments or as a line of credit. They do not have to pay the money back until they are no longer able to live in the home either because they have died or had to move into a nursing home or other facility. At that time, the heirs to the estate must pay off the loan plus interest. This is usually done through selling the home although the home does not have to be sold if the loan amount can be satisfied in some other way.
"Reverse mortgages are not for everyone," cautioned Carol Ann Green, loan officer at Pride Mortgage in Hingham which offers reverse mortgages. "But in the right circumstances they can help people stay in their homes and improve their quality of life."
Because reverse mortgages are a federal program, they are tightly regulated. Only a handful of lenders do the loans and they all follow the same guidelines and charge the same fees and interest rates. Every lender also requires applicants - and their heirs - to receive counseling before taking out a loan. Here are other criteria:
Age: Anyone whose name is on the deed of their primary residence and is age 62 or older can apply for a reverse mortgage.
Loan amount: Depends on the applicant's age and the amount of equity in the home..
Loan term: None. The loan is open-ended and does not have to be paid back until the applicant no longer lives in the home. At that time it must be paid in full.
Loan disbursement: Lump sum, monthly payment or a line of credit. No restrictions on how the money can be used.
Interest rate: Interest rates are tied to Treasury bills and adjust either monthly or annually. The monthly rate is tied to 1-year T bills with a margin of 1.5, and is currently 4.78 percent. The yearly rate is tied to 10-year T bills with a margin of 3.1 and are currently 6.38 percent.
Fees: All reverse mortgages have a fee of 2 points and also require HUD mortgage insurance. Other fees are similar to other mortgages (title insurance, appraisal, etc.)
"There's a perception that the bank owns your home with a reverse mortgage," said Marie Kirk, reverse mortgage consultant at Wells Fargo Home Mortgage in Boston. "This isn't true. You can live in your home as long as you're able. The bank does not take title to your home. It's a mortgage. As long as you're living in the home you don't have to pay it back."
Source: Daily News Transcript
