Tehachapi News

How your house can pay you back

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Reverse mortgage isn't for everyone. Families who have been able to plan for a financially secure retirement don't need this type of vehicle. But if you're like the majority of Americans who have found it difficult to set aside funds for retirement, or have found that medical expenses have you scratching for monthly cash, this could be the answer you've been looking for.

Although almost 66 percent of reverse mortgages have been originated in the last three years, it's actually a government-sponsored loan program that is nearly twenty years old. Homeowners 62 and older don't need to qualify for reverse mortgage based on income or credit, as they would if they did a traditional refinance. Benefits are based on age and equity. You continue to own your home, as individuals or in your trust, and you continue to control how your home is used. A common misconception is that “the government takes your house,” but that is untrue. The loan works with site-built homes, or on manufactured homes if you own the land. Homes in mobile-home parks are not eligible.

The first thing reverse mortgage does is pays off whatever loans you have against your house. That means you don't have to own your home free and clear for reverse mortgage to work. At the very least, the first benefit you get is that your monthly house payment stops. Homeowners are required to keep up on payments for homeowners insurance and property taxes.

Any additional benefit can be taken as cash, as a line of credit for use later, or as a monthly income stream. No payments are made as long as you live in the house as your primary residence, because the balance grows over time. The loan is due in full when you sell, or when the last person on title dies. The heirs have up to one year to repay the balance of the reverse mortgage, and then can take the leftover equity as their inheritance. There are no prepayment penalties, and the loans are government insured: If at the end, your balance is greater than your home's value, neither you nor your heirs have to repay the upside-down difference.

To insure seniors fully understand the mechanics of the program, loan counseling is required before loan processing can begin. Beware any originator who tries to sell you annuity products with your loan, as that is strictly prohibited by law.

Despite recent bad press about these loans, AARP recently did a survey of reverse mortgage holders, and found that 93 percent of recipients are satisfied with their reverse mortgage. 87 percent said it improved their quality of life. 93 percent say is has had a positive effect in their life, and only 3 percent were unhappy.

If you're a senior homeowner and you're struggling to make ends meet, you owe it to yourself to further investigate reverse mortgage and see if its benefits are right for you.

Tammy Engel has been recognized as one of the ten Most Dependable Mortgage Brokers of the West, and is the top originator of reverse mortgage locally for 2007. Contact her at 661/822-REAL for more information.