Reverse mortgages are available to qualifying homeowners who are 62 years of age or older, which have built up sufficient equity in their homes. They enable borrowers to convert a portion of their home equity into tax-free funds without having to sell their home, give up title, or take on a new monthly mortgage payment.1 Funds from a reverse mortgage can be received as regular monthly payments, a lump sum, or a line of credit. Borrowers can also opt to receive a combination of such distribution methods. On top of being tax-free, no monthly mortgage payment is required. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus any accrued interest is repaid. 1 There are also no circumstances during which the borrower of a reverse mortgage will ever owe more to the bank than the value of the home itself.
What is unfortunate is that due to a lack of understanding and education, reverse mortgages are sometimes perceived in a negative light. To combat such setbacks, the National Reverse Mortgage Lenders Association, a national trade association for reverse mortgage companies, decided to increase its educational efforts regarding reverse mortgages and how they are used.1 It should also be noted that the industry has gone through a number of significant changes. For example, the modern day reverse mortgage does not allow for an equity share, previously referred to as a “lender stake”, in a home. 1
What makes the loan even more reputable is the fact that the Federal Housing Administration now insures a reverse mortgage product knows as the Home Equity Conversion Mortgage, or HECM. HECMs are the nation’s most popular form of reverse mortgage, as they account for over 90% of all of the reverse mortgages in the United States.1
Although reverse mortgages have been in circulation since 1961, they have only recently garnered recognition from financial planners as a potentially beneficial tool for financial security throughout retirement.
SOURCES:
http://themortgagereports.com/17815/reverse-mortgages-hecm-fha-tom-kelly