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Reverse Mortgage Loans for Senior Citizens

by Brandon Cornett

If you are a homeowner over the age of 55, you've probably been hearing a lot about reverse mortgages lately. Perhaps you received an information kit in the mail about reverse mortgages lately, or maybe you've heard a friend talking about them.

In fact, I'm willing to bet that's the main reason you are visiting this website -- to learn more about the reverse mortgage options you've been hearing about lately. If that's the case, you should find the following information helpful.

What is a Reverse Mortgage Anyway?

Before you start talking to a lender about these types of loans, you need to learn everything you can about them. So let's start off by explaining what a reverse mortgage is in the first place, and how they function as a lending option for seniors.

First, a Basic Definition

A reverse mortgage is a type of loan made against that value of your home. In that regard, it is similar to a home equity loan or line of credit. But reverse mortgages have several key differences that make them unique. For one thing, the borrower does not have to pay the loan back for as long as they live in the home. Obviously, this is much different than a home equity loan, which must be paid back in monthly installments soon after the loan is made.

So in essence, a reverse mortgage is a way for seniors to convert the value of their home into cash without having to repay the loan right away.

Right about now, you probably have two questions: (1) Why do I keep talking about seniors and (2) how and when does the loan get repaid? These are key aspects of reverse mortgages and you are right to be curious about them. So let's dig deeper...

A Senior Lending Option

Reverse mortgage are typically aimed at senior citizens who own their own homes. In fact, the HUD reverse mortgage program (one of the first of its kind) actually has a strict age requirement. Applicants for a federally insured reverse mortgage through HUD must be at least 62 years old.

HUD isn't the only organization that offers reverse mortgages to senior citizen homeowners. There are private lenders who offer similar loan programs. But the HUD program is one of the most popular. In addition to the 62 or older requirement, applicants for a HUD reverse mortgage must either own the home outright or have a low mortgage balance that can be paid off at closing (with part of the proceeds from the reverse mortgage).

For other lenders (non-governmental types), the age requirement for a reverse mortgage will vary from one lender to the next. But there is always some type of age stipulation involved with reverse mortgage loans and that's why they are considered a senior lending option.

Paying Back the Reverse Mortgage

Another key question that seniors have when researching reverse mortgages is: "When and how do I pay the loan back?" First, keep in mind that the exact details of a loan will vary from one lender to the next. With that being said, there are certain characteristics that apply to most reverse mortgages made to seniors these days. So let's focus on those:

In most cases, you do not have to pay anything back on your reverse mortgage loan until (A) you die, (B) you sell the home, or (C) your move out of the home. In other words, the loan will have to be paid back when home is no longer your primary residence, for whatever reason.

When one of these conditions has occurred, and the loan repayment is due, you (or your estate) will have to repay the amount borrowed in the reverse mortgage plus any lending fees.

How Much Can I Borrow?

Here again, the amount will differ from one lender to the next. But in general, the amount you can borrow on a reverse mortgage will depend on several factors:

• Your age
• The current interest rates
• The value of your home (appraisal)

So being older, having a more valuable home, and borrowing when interest rates are lower will all increase the amount of money you can borrow through a reverse mortgage option.

Increasingly Popular Among Senior Citizens

The number of reverse mortgages has been rising steadily over the last few years. One reason for this is that there's a larger pool of potential borrowers each year, because the number of seniors 62 and older is increasing (better medical treatment, better health, etc.).

Another reason the reverse mortgage is becoming so popular among seniors has to do with good old-fashioned marketing. The lenders that offer these mortgage loan programs have been pretty active in their marketing efforts in recent years.

As a result of these and other factors, the number of seniors taking our reverse mortgage loans has increased significantly over the last few years. For example, from 2005 - 2006 there was a 56% increase in the number of reverse mortgages granted to senior citizens in the United States.

Learn More - Related Information

Is this type of loan right for you? Well, you'll have to do a bit more homework before you can answer that question. This article alone is not enough to base a decision on (though I hope you have found it helpful). All real estate decisions require a lot of homework and forethought, and reverse mortgage loans are no different.

In particular, you should conduct enough research so that you fully understand the following topics:

• How does the reverse mortgage work exactly?
• Advantages and disadvantages of a reverse mortgages
• Do I qualify for such a loan?

Here are some resources to help you answer these and other questions:

AARP Tutorial on the Subject
This collection of tips and articles compiled by the AARP is a great place start when learning about the advantages and disadvantages of reverse mortgages and other key topics.
www.aarp.org/money/revmort/

HUD - Reverse Mortgage for Seniors
This is another must-read for any senior considering this type of lending options. HUD also provides housing counselors who can teach you about your options.
www.hud.gov/buying/rvrsmort.cfm