Reverse Mortgages Become a Popular Option for Seniors

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Estate Planning Reverse Mortgages

With all the buzz over reverse mortgages (RM's) in the past couple years, I was surprised to learn that the first reverse mortgage was completed in Portland, Maine in 1961. The concept evolved until 1989 when RM's went mainstream with HUD selecting 50 lenders by lottery to make the first FHA-insured reverse mortgages.  Even though reverse mortgage's have now been around for a couple decades or more, they have become increasingly important vehicles for providing increased financial security and improving the quality of life for seniors.  These special loans are available to homeowners age 62 or older, which allows them to pull cash out of their home without making mortgage payments.  Unlike a traditional home loan where you borrow a lump sum and make payments to the bank, the reverse mortgage gives you the lump sum (tax-free) and the interest adds to the initial principal and only has to be re-paid to the bank upon the borrowers death or if the borrower decides to sell the home.  This has the intended effect of giving older Americans more income or assets to use to enjoy family and friends, explore special interests, cultivate new skills or just live life to the fullest.

Sometimes our retirement years can present special challenges, and often people find themselves in need of extra income just to keep up.  Fortunately tools like the reverse mortgage have been developed to tap into the equity in our homes that often seemed locked away and unavailable.

How much can you get with a reverse mortgage?

Usually in the neighborhood of 40% to 60% of your home's value.  There are four factors that go into determining the amount available:

  1. The value of the home
  2. The number and ages of the homeowners
  3. The interest rate offered
  4. The maximum allowable loan limit as determined by the average values of homes in your county and the limits of the backing agency such as FHA