Reverse Mortgage Loan Blog

Janet Bush began looking into reverse mortgages about 15 years ago when money became a little tight. Though she didn’t apply for the loan back then, she kept it in the back of her mind as a financial option.

Two months ago, Bush decided to take out a reverse mortgage home equity line of credit on her 3,000-square-foot farmhouse in Victor. A piano teacher who enjoys being independent, the line of credit offers her the option “to draw on it if I need it,” said Bush, 82.

Is a reverse mortgage right for you? A reverse mortgage allows individuals to borrow against the equity they have established in their home. Instead of making monthly payments, as with a typical mortgage, the borrower of a reverse mortgage can choose to receive monthly payments, take a lump sum or establish a line of credit to draw on.

“It can make your golden years a little more golden,” said Matt McAfee, sales manager for reverse mortgage at M&T Bank.

A reverse mortgage could provide an additional income source for those who qualify, McAfee said.

There are restrictions to a home equity loan, said Duncan O’Dwyer, partner at Forsyth, Howe, O’Dwyer, Kalb & Murphy in Rochester. To be eligible for a reverse mortgage loan, the borrower and any other owners of the home must be 62 or older, live in the home as their principal residence and not be delinquent on any federal debt, O’Dwyer said. The home must be free and clear or have a remaining mortgage balance that can be paid off by the reverse mortgage.

Townhomes, detached homes, condominium units, homes that are part of a planned unit development and some manufactured homes are eligible. However, cooperatives and most mobile homes are not eligible, O’Dwyer said.

The home must also meet the U.S. Department of Housing and Urban Development’s minimum property standards, though the owner can use a reverse mortgage to pay for repairs that may be required.

The amount that can be taken out against the home is based on the current interest rateand the home’s value, McAfee said. The loans are Federal Housing Authority-insured, which means that if the homeowner outlives the loan amount, FHA absorbs that risk. But if there is equity left, the selected beneficiaries may keep the equity left after paying off the loan.

There is also a reverse mortgage available for new purchases if a homeowner decides to swap his or her principal residence, McAfee said.

One of the misconceptions about reverse mortgage loans is that only the needy use them, O’Dwyer said. But some seniors choose to take the loan when they need to get out of debt while others do it for financial planning reasons.

Some seniors will find themselves in the situation of being house-rich and cash-poor, and a reverse mortgage could help seniors live better in their retirement years, McAfee said.

But reverse mortgages have a fairly substantial upfront cost. Such mortgages make sense if the homeowner plans to stay in the home for a while, McAfee said. If the borrower plans to move in a year or two, taking out the loan may not be the right move, he said.

Given the three ways to access a reverse mortgage — a lump sum, monthly payments or a line of credit — most M&T customers choose the lump sum or the line-of-credit option, McAfee said.

For Bush, the line of credit gave her the money to take on the landscaping project that she had put off for financial reasons.

While she has five children, “I educated them all to be independent,” Bush said.

Found here.

Bookmark It