The golden years are a time to enjoy life, relax, and have a worry-free retirement. During our working years we plan for this time, save money and make investments for the future. But, naturally over time, the cost of living increases, unexpected financialcircumstances arise and many find themselves without sufficient funds to maintain a pre-retirement standard of living.
As seniors begin to address these issues it’s important to remember the help one’s most significant asset — your home — can lend. Reverse mortgages are a great resource that offer homeowners, age 62 years or older, the opportunity to tap into the equity in their home to satisfy financial needs.
Reverse mortgages have been around in one form or another since the early 1960s. They remained in total obscurity until 1990 when the U.S. Department of Housing and Urban Development (HUD) created the federally-insured Home Equity Conversion Mortgage (HECM). Reverse mortgages were then backed 100% by the federal government.
In essence, a reverse mortgage is a loan that enables senior homeowners to convert part of the equity in their homes into income. The reverse mortgage is a non-recourse loan, which means that the total loan amount taken will never exceed the current market value of the home at the time the loan becomes due. Loan proceedsavailable to the borrower are based on three factors: age, appraised value of the home and loan rate.
There are two principal choices for a reverse mortgage. There is the Home Equity Conversion Mortgage (HECM), which is the HUD-approved and insured reverse mortgage. The other is a proprietary reverse mortgage, which is a loan issued by a commercial lender who is not obligated to follow HUD guidelines.