What Is A Reverse Mortgage, How Do Reverse Mortgages Work

What is a reverse mortgage? How can a mortgage be reverse? Is it a loan or what? These are typical questions, which the American seniors do, when they hear about the reverse mortgage for the first time. This article explains the basic features of the reverse mortgage.

An American senior can qualify for the reverse loan if he or she owns a home, where he lives permanently and where he has enough equity. If he has an usual mortgage left, it is not a problem. And he must be at least 62 years old. Thats all. When he wonder how do reverse mortgages work, the answer is, that he or she will take a loan against the equity of his home. The equity will be the only collateral for the loan.

1. To Whom The Reverse Loan Is Targeted?

When the Reagan government decided about the reverse loan it had one target. To offer better life circumstances to the American seniors, who are cash poor but equity rich. That meant seniors, who need more disposable cash. The only source of the money is the homes, which they own.

So they planned a loan, which used the equity of the home, i.e. seniors who wanted to go on living in their old homes could continue that but who had also an opportunity, if they wanted, to eat the equity, which they had saved during many years.

2. The Payments To The Senior Are Tax Free.

This is quite clear, because the loan comes from the equity, which a senior has paid using his salary. And he has paid taxes from his salary already once. However, it is wise to check this issue from the state, where a senior lives, because in some states the lump sums are taxable. The monthly payments, which are used during the same month are usually tax free.

3. A Senior Can Dictate, How The Lender Will Pay To Him.

This is nice. A borrower, i.e. a senior can order a bank, how it will pay to him. The alternatives are the lump sum, the monthly payments, the credit line or the combination of these. Of course the needs of the senior will order the payment way. Usually these loans are used for the serious purposes, like for the increased medical bills, house repair etc., but nobody will ask how the loan will be used.

4. Maximum Three Seniors Can Become The Borrowers.

The couple or maximum three borrowers can become the borrowers, but in this case all must qualify. This means, that they all must live in the home permanently and be the official owners of the property. It is not a must, that they are relatives. The loan terms will be calculated along the age of the youngest borrower.

5. The Loan Will Be Paid Back, When The Last Borrower Will Sell The Home, Move Away Or Pass Away.

As long as even one borrower will live in the home, the running time just goes on. But when the last borrower will die, move away or sells the home, the home will be sold and the selling price will be used to pay away the loan capital, interests and the costs. The obligatory mortgage insurance will cover the costs, which a home selling price cannot do.

The home equity is honestly the only collateral for the home. In no case a borrower has to use his other assets to pay for the reverse loan. Nor has the heirs to pay it. This is why the lender will not ask the income statement or the credit score, when a senior will apply for the reverse loan.

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Retire With Reverse Mortgage, Earn Secure And Regular Income

Have you noticed, that the reverse mortgage is for a senior, who needs a supplemental income and who has the home equity as an only source of money. If you ponder the reverse mortgage as one option, read this article!

First, the reverse mortgage loan is for a senior, who is at least 62 year old, own a home, which is his or her permanent home and where he has equity left. The lender will not ask any income nor credit score, because the loan is always taken against the equity. A senior or heirs will never owe more than the market value of the home.

A borrower can not lose the home, if he pays the taxes, the property insurances and keeps the property in a good shape. If not, the lender has the right to claim, that the property will be sold and the loan capital, the accrued interests and all the costs will be paid back. A borrower has to take a mortgage insurance, which will be used if the home selling price cannot cover all the costs.

You Order, How The Lender Will Pay.

It sounds odd, but the lender honestly will pay to the borrower according to the timetable, which the borrower has ordered. The borrower can pick the monthly payment, lump sum, credit line or the combination of some or all of these. The borrower has no back payments during the loan running time, but the capital, interests and all the costs will be paid back when the running time has been ended and the home sold.

How To Pick The Timing?

This depends on your plan. If you already know, how much you will need per month, or annually, then the plan is made following this need. If you do not know, then you have another alternative. If you want to be ready for an extra medical bills, for example, you can select the credit line and use it when or if needed. Or you can get the needed reverse mortgage information and see whether you will need it in the future.

Reverse Mortgage As A Supplemental Income.

The maximum reverse mortgage loan is $ 625.500 which means it cannot be the one and only source of money to cover your living costs. For most seniors the reverse loan is a supplemental source of money and they use it to cover sudden extra costs, like the home repair or medical bills.

If You Want To Play It Safe, Pick The Fixed Interest Rate.

The borrower will reamain the home ownership, which means that the home value increases benefits him. However he will start to enjoy about this benefit after the running time is ended. The biggest cost item is usually the accrued interest rates. When a senior succeed to agree the fixed rate loan during a recession, when the rates are low, that can honestly save a lot of money and to make the planning safe.

Pick A Reputable And Well Known Lender.

A reverse loan agreement is always a long term commitment, which means that the lender selection is a careful process. It is clear that only the reputable, long term companies can fulfil the requirements. The reverse loans, which are secured by the Federal Government are safe, because the Government will pay to the lnder, if the original lender cannot do that.

Juhani Tontti, B.Sc., Marketing. Have You Noticed, That The Reverse Mortgage Is For Seniors, Who Are Cash Poor And Need A Supplemental Retirement Income To Manage Financially. Visit: Reverse Mortgages

How The New FHA Reverse Mortgage Saves Costs

Have you heard how the new FHA reverse mortgage loan program gives a senior a possibility to buy a smaller home or home from another location without using all the savings, plus that a senior can save thousands with the process?

The new FHA reverse mortgage program has an ideal timing. Many seniors suffer from the hard recession, dropped share prices and rising living costs, including the medicines. What they need is a source to grow the daily income. For many the home equity is the only source, which FHA has understood.

FHA reverse mortgage was developed after FHA noticed, that many seniors first sold their bigger homes and bought smaller ones. Then they signed the reverse loans against the smaller ones. What happened was, that they paid the closing costs two times.

New HECM Reverse Mortgage For Home Purchase Saves Costs.

New FHA reverse mortgage gives an opportunity to buy a new home with the reverse mortgage without selling the old home. The allowed home types are single family homes, condos or a small multi family residences. Seniors can reveal some of the existing equity into cash.

As long as the property is their primary home, they will enjoy about the monthly payments, which are tax free. Plus they can rent out the old home and to get an extra disposable monthly cash. The lender follows the payment instructions of the borrower. The alternatives are the monthly payments, lump sum, credit line or the combination of these all.

Here Is, How You Can Get The New FHA Reverse Mortgage.

First, you have to be at least 62 years old and own a home, where you live permanently and where you have equity left. Altogether three seniors can become borrowers, but then everybody must fulfil the requirements. A borrower must go through the counselor meeting, where he has a chance to ask advice.

How Much A Senior Can Get With The New FHA Reverse Mortgage?

Usually the loan sum is 35 – 55 % of the home equity. However, it is not wise to take a very small reverse loan, because the costs can take the major part of the equity. The loan sum is not fixed, but depends on the appraised value of the home, on the level of the interest rate and on the age of the borrower, or if they are many, on the age of the youngest borrower. The ceiling is in all cases $ 625.500.

A Senior Can Get Rid Of The Monthly Mortgage Payments.

When a senior wants to buy a smaller home with FHA reverse mortgage and to sell an old home, where he has mortgage left, he will honestly improve his monthly financial situation. First, he will pay away the old mortgage, then he will take a reverse loan against the equity of the new home plus he will get an extra sum of cash money. In the end of the day, he will not pay any monthly mortgage payments.

If The Market Is Soft, A Senior Can Postpone The Sale Of The Present Home. Let us assume, that a senior wants to buy a smaller home with the reverse loan, but does not want to sell the old home, because the market prices are down. So he decides to wait until the prices rebound. What he can do is, that he can rent out the present home and buy a new one with HECM reverse mortgage for home purchase and to wait until the prices recover.

A senior Can Never Owe More, Than The Value Of The Home.

This makes a new FHA reverse mortgage riskless to the borrower and to his heirs. The only collateral, which the loan has is the home equity. The running time will end, when the last borrower will sell the home, move away or pass away. Then the home will be sold and the selling price is used to pay the loan capital, interests and all the costs. If it does not cover the whole sum, the mortgage insurance will pay the rest.

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Reverse Mortgage Facts – Information To Know Before Applying

Have you ever honestly thought, how many facts you have to know about the reverse mortgage loans, before you are ready to apply? Have you realized, that your role is to write your financial needs, but then read expert information and talk to the counselor?

There should not be any reverse mortgage facts, which you would not know after you have done your homework carefully. Why should you? Simply, because that is your role and you will benefit from it. This article tries to arouse some of the biggest questions concerning the reverse mortgage information and tries to draw your interest to the many details this loan type includes.

Dont worry, there is no industry jargon, only practical questions and answers. It is important to offer the information with a street man`s language and to avoid the typical financial jargon. Unfortunately I cannot offer state by state details, because they wary a little bit, but this list gives you a good idea about the reverse mortgage information to ask.

Who Can Even Dream About This Product?

The reverse mortgages are meant for senior Americans, who own their permanent home, where they have enough equity and who are at least 62. So every applicant must be at least 62 and marked as an owner. The maximum amount of borrowers is three.

What About The Income Or Credit Information?

Don`t worry, nobody will ask it, because the reverse loan will always be taken against the equity of your home. This means, that even if you have not so good credit score you will automatically get the reverse loan, if you have these three things in order: you are at least 62, own a home, where you live permanently and where you have enough equity. That`s all!

How Can I Use The Money?

Well, it´s up to you. The money comes from your home equity and is meant to you. This means nobody will ask a report about the usage. You are free to decide it.

How Much Can I Get?

Good, that you asked that! The maximum amount depends on several things: about your age, or about the age of the youngest borrower, the appraised value of the home and about the interest rate level. To put it simply, the older you are, the higher the home value and the lower the interest rate, the more you will get.

But My Financial Future Is Unknown.

This is the situation for most of the seniors. Who can say for sure, what needs he or she will have after five years, for example? In these cases it is wise to use a credit line opportunity or to leave a part of the maximum sum unused.

Do I Have To Pay The Taxes?

In most cases no, because the reverse mortgage payments are not income but the loan payments. And you have already paid the taxes once, when you earned the salary with which you have paid your mortgage. The thumb rule is, that if you will spend the money during the same month as you have received it, it is tax free. The lump sums are different and you better ask advice from the reverse mortgage counselor.

How Can I Find A Reliable Lender?

The best source of information is your friend, who has taken the reverse loan or your bank manager. The reverse loan is a long term commitment, so only the old financial companies with the good reputation can form your short list.

What Loan Types There Are?

The home equity conversion mortgage, or HECM, is the most popular loan with a market share of around 90 %. HECM is the only loan, which is insured by HUD, i.e. the Federal Government. The insurance means that if your lender will become unable to pay to you, the insurance will take care of the missing payments. HUD has two other loan types, HECM for purchase and HECM Saver Reverse Mortgage.

The proprietary reverse mortgages are private loans, which are backed by the companies, which created them. The single purpose reverse mortgages are offered by some states and some local government agencies or nonprofit organizations.

What Is The Best Time To Sign?

Of course your financial needs dictate the timing but if you are not in a hurry, you can save some money. The reverse loans are financial products, so their prices follow the general economical circumstances. This means, that when the economy is flying high, so are the reverse loan prices and vice versa. So you can do the best deal during the recession by shopping around and by selecting a fixed rate loan.

Can I Buy My First Home With This?

Yes you can but then you must have a bigger down payment, because the equity is missing. If you can do this, it is possible.

What Should I Do To Prepare For The Counselor Meeting?

Collect as much questions and information as you can. In the end of the day only you will carry the responsibility. The secret is in the details. You simply have to know the reverse mortgage information well enough. Ask, discuss, read from the Internet, call to your bank manager, contact the senior people`s associations and so forth.

Can The Lender Take My Home?

Never, if you will take care of the property insurances, taxes and to keep the property in a good shape. The heirs or the spouse is never forced to pay for the reverse loan. There are only two money sources, the mortgage insurance and the selling price of the home. That`s it!

Can I Refinance The Loan?

Yes, it is possible. The market can offer better terms than what you have at the moment, but you can also get new costs to pay. It is wise to make the calculations carefully and to show them to the counselor.

What`s The Benefit Of The Counselor Meeting?

First, concerning the HECM loans it is mandatory. This does not make it useless. On the contrary. The counselors are respected senior advisors, who have usually a long experience about the financial issues of the seniors. The reverse mortgage facts, that these people can give to you are extremely valuable. Prepare well for the meeting, it can mean you huge savings!

Is My Medicaid Eligibility In Danger?

No, if you will follow the Congress guidance. They have set the so called penalty rules. If you have assets, you have to move them to another place, so that you are anymore their owner. Congress has established a period of non-eligibility for Medicaid for the seniors, who have these kind of assets and will transfer the money.

These are many more topics are handled in the article collection published at Reverse Mortgage Information page. I recommend the reading warmly!

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Now Free HECM Reverse Mortgage Counseling For All Seniors

Have you known, that a senior customer will never be turned away, if he or she cannot pay the reverse mortgage counseling? HUD, which is a Government agency, has got the rules, that they can charge for the reverse mortgage counseling, but only a fair price. Now there is even better news!

The HECM reverse mortgage counseling rules say, that the agency cannot charge the fee during the counseling session, if the incomes of the applicant is 200 % below the poverty limit. However, in these cases they charge the fee when the loan will be closed. The low income customers must bring the income documents, like the social security payment receipts or other income documents to the reverse mortgage counseling session.

1. Why The Reverse Mortgage Counseling Is Important?

This session is obligatory for all seniors, who will apply for HECM. This tries to guarantee, that the seniors get enough independent information about how to solve the financial future problems. The counselors are experts, who help seniors and they do not try to sell anything.

A senior, who is going to meet the counselor must do the homework. He has to plan, how he will arrange his or her future financial questions. The job of the counselor is to find the answers. The answer can be something else, than to take the reverse loan. But if the solution is the reverse loan, the counselor can advice, which lenders are reliable, what are the costs of the loan and how the loan works.

2. Who Can Qualify?

The qualification has been made easy. The key thing is, that an applicant is 62 year old or older and owns his permanent home, where he has equity left. Almost all home types are accepted, only some motor home types have been left outside. Altogether three seniors can become borrowers, but all must be owners and fulfil the requirements.

3. Kill The Rumours By Meeting An Expert!

When a human nature does not understand something, it starts to create its own truths. This has happened to the reverse loan images. People, and the press, have invented a lot of rumours about the unhappy seniors, who suffer because they have taken the reverse loan. On the top of this there are quite many scam artists, who have sold too big programs to the seniors. To avoid all the difficulties from these things, a senior makes it wise to get the expert guidance from the counselor.

4. Get The Correct Information Already In The Beginning Of The Planning Process.

It is important to make your homework. The Internet includes all the needed information, so just use the search engines. Actually you can get the full information about how the reverse loans work before you will meet the counselor. In the counselor meeting you can get information for your own situation, i.e. which solutions fit to you.

5. The Free Reverse Mortgage Counseling.

HECM reverse mortgage counseling has always been free for seniors with annual incomes less than $ 20.000 or for couples with annual incomes less than $ 30.000. For others the customary fee has been $ 125, which has been included in the loan sum, i.e. collected after the running time has ended.

And then the good news. HECM reverse mortgage counselors will waive the counseling fees from all borrowers to improve the information sharing and to help elder people to keep their homes. They see the free information sharing as one important way to make the program more interesting among the seniors.

The service is offered by NCOA or The National Council on Aging via its Reverse Mortgage Counseling Services Network. If you are interested, they offer a free telephone number to set the date for the meeting, which you can find from the Internet.

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Reverse Mortgages For Seniors, How To Finance The Retirement

When you have pondered the reverse mortgages for seniors, have you thought how you would finance your retirement? Have you noticed that the reverse mortgage loans release cash for you along the schedule you have decided!

The retirement years are full of surprises. Unfortunately most of them concern the living costs, the income side staying unchanged. Towards this background it is useful to know, that the reverse mortgages for seniors are a possible source of an extra cash.

I think this is the smart thinking. The reverse mortgage loans should be an opportunity, which you can use if needed. The retirement years should be financed with the usual pensions, as most retired do.

1. If You Have Normal Reverse Loan Left.

A borrower can have only one mortgage loan type at a time. This means, that if you have a usual mortgage still left, you will pay it away with the reverse loan. This releases more cash for the monthly usage. And because the reverse loan has no monthly back payments, you will get a double benefit, both tax free.

2. The Peace Of The Mind.

The reverse mortgages for seniors offer a secure source of the money in case a senior will need it. It is like a financial insurance for the future. It is wise to get the facts about the reverse mortgages in a good time in advance and when the sudden need comes, a senior is ready. This is important, because most seniors have a situation, when the incomes do not grow, but they are afraid about the possible living cost increases in the future and how are they able to manage them.

3. You Can Use The Money From The Reverse Mortgages As You Will.

The lender, most often a bank, will follow your instructions when paying to you. There is no credit nor income information needed, because the loan is always taken against the equity of your permanent home. You do not have to report to anybody about the usage of the money.

Many seniors use it as a supplement to the normal pension, to pay the sudden medical bills, to buy a flat to a child, to travel or to pay the home repair, for instance. It is good to remember, that the money comes from the home equity, i.e. it is the money, which a senior has paid once plus the home price increases.

4. The Reverse Loan Payments Are Tax Free.

This is not a crystal clear rule, because some states in US follow the rule, that if the money is used during the same month, then it is tax free. But a senior has to talk with a counselor, if he plans to take a lump sum, it may be taxable money.

5. The Future Is Unknown, Think To Take A Credit Line.

A borrower can select, how he or she wants the lender to pay to him. The alternatives are the monthly payments, the lump sum, a credit line or a combination of all these. If a senior does not know, what are his needs he can always pick a credit line, because that is honestly flexible.

The reverse mortgages for seniors offer benefits, which are taylor made for the senior Americans. The seniors can continue to live in their old homes and to maintain the home ownerships. This is important, because the home price increases add value to the equity.

The reverse mortgages are blamed for their costs, that the upfront costs are quite high. Here I can only say, that it depends on the situation. If the home equity is the only source of the money and if the need of the money is serious, is the cost still reasonable?

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How Reverse Mortgage Counseling Association Helps Seniors

Have you always hoped, that some reverse mortgage counseling group would help seniors by arranging contacts between the reverse mortgage borrowers? Have you a need to discuss with other reverse mortgage borrowers?

The Reverse Mortgage Counseling Association made this plan to become true in June 2011. This program is called RMCA Senior Membership Program and the target is to share the research data, allow the seniors to use the tools and get the industry feedback. This program is open for new and present borrowers and it encourages members to form a community, which is useful for all members.

1. The Street Level Communication.

Today the seniors can use the reverse mortgage counseling, the official guidance, but this new program deepens that information, because the seniors can get a real life experiences from other members and to make questions to the reverse loan industry.

This program has an ambitious task to collect all the relevant information and the user experiences into one place. The data will be objective and the program works as a bridge builder between the industry and the senior members.

2. What The Members Will Get?

The efficiency of these kind of programs depends partly on their activities. The annual fee is $ 25 and with that the members will get newsletters, aging in place information, United Networks Of America discount card, the usage of the national non-profit referral service and they can use the counseling from other members concerning the tax and insurance issues.

3. The Target Is To Help Seniors To Age At Their Homes.

This is a very nobel target and the seniors require a lot of guidance and information to be able to solve all the obstacles. The program, which the Reverse Mortgage Counseling Association has set helps a lot. It works as a supporting program, which has a big mental influence on the seniors, who have the reverse loan.

The reverse loan lenders have taken the program as a very useful venture and some have even donated an one year membership fee to the borrowers. It is wise, that both the borrowers and the lenders meet in this program, because they actually have mutual benefits.

4. A Survey Will Be Made Twice An Year.

This is useful for all parties, because it is important to research, what is honestly happening in the industry. The survey will monitor, how the senior borrower needs are developing, which again will help also the lenders to adjust the contents of their products.

5. Contacts Between Members With SandBox Senior Service.

This service offers an unofficial channel between the members and allows to make questions from the different reverse mortgage issues. Because the program works like a club, only the members can see the communications.

The target of the Reverse Mortgage Counseling Association to establish this program is to strengthen the industry by building the active contacts between the members. It will also strengthen the community by sharing the correct information and to kill the false rumours.

Juhani Tontti, B.Sc., Marketing, Is Happy That The Reverse Mortgage Counseling Association Started The Senior Membership Program. The Reverse Mortgage Counselors Want Really To Help Seniors. Visit: Reverse Mortgage Information