Tip of the Month - April 2007

A Message for Senior Homeowners

The Reverse Mortgage

The reverse mortgage is a unique type of loan program that allows senior citizens who are at least 62 years of age to convert their home equity into tax-free income. Unlike a traditional mortgage where monthly payments are required to repay the debt, with a reverse mortgage there are no payments. In fact, the lender makes payments to you. For many seniors, these mortgages can provide answers to some critical retirement issues by providing income at a time when they need it most.

Here are a few highlights of a reverse mortgage:

• You do not have to qualify on income or personal credit. You must own your own home and meet the age requirement.
  
• You retain full control of your property. The lender never owns your home, and the remaining equity is retained by you and transfers to your heirs upon your death.
  
• There are no monthly loan payments. Expenses such as loan origination and closing fees can be financed through the reverse mortgage, so there are little or no out-of-pocket costs.
  
• You can choose the method of receiving your funds. These ways include a lump sum payment, monthly payments, or a line of credit which you can draw on at will.
  
• The money can be used for any purpose: cash income to help manage basic expenses and debt relief, for home improvement, travel, estate planning, medical and prescription expenses. One of the most common reasons for obtaining a reverse mortgage is for the payment of long-term health care expenses. This can be especially significant for seniors who desire to remain in their personal residence and hire in-home care givers rather than make the transition to an assisted living facility.

A qualified mortgage broker can explain the different types of reverse mortgage plans and help you make an informed decision about this financing. No matter which reverse mortgage product you choose, the amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), appraised home value, current interest rates, and the lending limit in your area. Generally, the older you are and the more valuable your home (and the less you owe on your home), the more money you can receive.

Independent, third-party counseling is required by law for all reverse mortgages and may be conducted face-to-face or by telephone. This counseling is one of the most important consumer protections built into the program. Counselors must make sure you understand the loan program, any possible tax consequences, and any impact on your estate. The counselor must also review alternative financing options before you apply for a reverse mortgage.

The Heritage Escrow Company has a specialized team of escrow officers who are trained to provide closing services for these transactions. They understand the unique processing of this particular loan product and are familiar with the required documentation.

The first step for interested seniors is to locate a mortgage broker with extensive experience in reverse mortgages who can help you decide if this type of financing is right for you. The information provided here is intended to highlight some of the unique features of a reverse mortgage and is not a substitute for the advice of a skilled lending professional.

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