Revisiting Reverse Mortgages Home Loans for Older Adults

 Florida has the highest percentage of seniors in the United States; approaching  20 percent of the state's population is over 55, according to the latest U.S.  Census. And because of the large numbers of senior citizens residing here, The  Sunshine State has been a strong market for reverse mortgages, a type of loan  structure that is only available to senior homeowners 62 years and older.  

 Basic Facts

 A reverse mortgage is a particular type of home loan that lets the borrower  convert a portion of the equity in your their into cash, according to the  federal Department of Housing and Urban Development (HUD), which administers  the great majority of them.  

     Although the interest keeps building up, the reverse mortgage doesn’t come due or payable until the borrower passes away or moves out of the home  permanently - meaning that he or she hasn’t lived in the home for a year or more, according to Peter Bell, president and  CEO of the National Reverse Mortgage Lenders Association. The repayment amount  can’t exceed the sales value of the home. After the loan is repaid, any remaining  equity is distributed to the borrower or the borrower’s heirs or estate.  

 “There are liabilities taken on by lenders as part of their responsibilities as  FHA lenders,” says Bell, but “the FHA insurance is designed to help mitigate those liabilities.”  

 The first reverse mortgage was given in 1961, but that was an isolated case  given by a local savings and loan in Portland, Maine, to the widow of the  lender’s high school football coach. The concept became more popular in the 1980s, and  in 1987, under the influence of the AARP, Congress created the Home Equity  Conversion Mortgage, or reverse mortgage program. In 1989, HUD selected 50  lenders to make the first FHA-insured reverse mortgages. After years of  popularity, however, the current financial situation has seemingly made some  lenders think twice about offering reverse mortgages.  

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2 Comments

  • As a loan signing notary and condo owner, I have learned that reverse equity mortgages are not available to condo owners for a few reasons. We must be FHA approved: having a certain amount of reserves for capital repairs is something that a lot of south Florida condos do not maintain; restricted number of rental units and; We are very mistrustful of funds being in the hands of possible unscrupulous board members. The other reason is that the common areas are not individually owned so that lenders of reverse equity mortgages cannot guarantee insuring the loan. While there are many Co-ops here in south Florida, most of them do not qualify for any kind of mortgage (sometimes because of land leases). So, I believe it is not such an open market for reverse equity mortgages.
  • You are basically signing over your home and any appreciated value to the lender. You get usually less then 50 cents on the dollar for your home by the time fees are taken out. Market goes up which 95% time it does you lose all that money. Your heirs may get a small part of it depending on interest owed on loan. EX 150K house free and clear you'll may get about 75k upfront. That 75k is charged interest by the lender and added to your loan. Interest can be as high 300/ month or more. That's 3600/ year you live 15 years before moving from house you know owe 129K plus fees and insurance so basically if you house didn't increase in value (rare) but possible you or your heirs sell the house you get less then 20 K after selling fees you break even and get nothing for your home. Now if it increased in value you'll get the increase or at least some of it. Home decreases then loan is forgiven and the insurance pays off the house. I feel this should be a last resort loan for if you did an equity loan for the same house say 4% for 15 years. Your payment would be 555/ month. You can afford that and the same 15 years with no home increase in valueof your home. You decide to sell home you get the entire 150K. Since loan is already paid off. You or your heirs get it all. You may want longer term equity loan in that case the reminder of loan would have to be paid. Least your not paying interest on top of interest.