FHA Reverse Mortgages for People Older Than 62

If you are age 62 or older you may want to participate in FHA's Home Equity Conversion Mortgage (HECM), better known as the Reverse Mortgage, program. To qualify for a Reverse Mortgage you must be a homeowner that has paid off your mortgage or paid it down by a considerable amount and are currently living in the home.

With this program you can choose the way you want to withdraw your funds. You can choose to receive them in a fixed monthly amount or a line of credit or a combination of both.

How the FHA Reverse Mortgage Program Works

There are many things for you to consider before deciding a Reverse Mortgage is the right course of action for you. To help in this process the FHA requires you to meet with a Reserve Mortgage counselor of your choosing.

This counselor will discuss Reverse Mortgage financial implications, eligibility requirements and alternatives to a Reverse Mortgage. They will also discuss how to repaying this loan and what happens when the Reverse Mortgage becomes due and payable.

Upon the completion of this counseling session you should be able to make an informed decision regarding whether a Reverse Mortgage will meet your specific needs. You can search online for a HECM or Reverse Mortgage counselor or call toll-free  (800) 569-4287 to locate one.

You must also meet certain borrower and property eligibility requirements. You can use the information below or a reverse mortgage calculator, readily found online, to make sure you qualify.

If you meet the eligibility requirements you can complete a reverse mortgage application through any FHA-approved lender. Almost any institution that offers mortgages will be FHA approved. You can do an online search for a FHA approved lender or ask the HECM counselor to provide you with a list. After you choose a lender they will discuss all the requirements of the Reverse Mortgage program, the loan approval process, and the repayment terms with you. If they will not do this then you picked the wrong lender. Do more research and then choose another mortgage source!

Borrower Requirements

* Be at least 62 years of age

* Own the property free and clear or have a considerable amount of equity

* Live on the property and it must be your principal residence

* You can't be be delinquent on any federal debt

* Attend a consumer information session presented by a HUD approved HECM or Reverse Mortgage counselor

Property Requirements

* A single family home or

* A 2 to 4 unit complex and one unit must be occupied by the borrower or

* A HUD approved condominium community or

* A manufactured or mobile home that meets all FHA requirements

Financial Requirements

* Income, assets, monthly living expenses, credit history, payments of real estate taxes and insurance premiums may be verified.

You can select from five payment plans:

* Tenure - equal monthly payments to you as long as one borrower lives and continues to occupy the property as their principal residence.

* Term - equal monthly payments to you for a fixed period of months.

* Line of Credit - unscheduled payments or installments to you, at times and in an amount of your choosing, until the line of credit is exhausted.

* Modified Tenure - combination of line of credit and scheduled monthly payments to you for as long as one borrower lives and continues to occupy the property as their principal residence.

* Modified Term - combination of line of credit plus monthly payments to you for a fixed period of months selected by you.

You can change your payment plan at any time for $20.00

What Your Mortgage Amount is Based On

The age of the youngest borrower

The current interest rate

The appraised value or the FHA Reverse Mortgage limit of $625,500 or the sales price whichever is less

As a general rule the more valuable your home is, the older you are, and the lower the interest rate is, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.

For an estimate of your Reverse Mortgage cash benefits, go to the HECM Home Page and select the online calculator.

Reverse Mortgage Costs

You can pay most of the costs of a Reverse Mortgage by financing them. This means that you can have them paid from the proceeds of the loan and not with cash from out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.

A Reverse Mortgage can incur several fees and charges including mortgage insurance premiums (initial and annual), any third party charges, origination fees, interest and servicing fees. The lender will discuss these fees and charges with you prior to closing your loan.

You will be charged an initial mortgage insurance premium at closing. The premium will be either 2% for the Standard insurance program or the 1% for the Saver insurance program. These insurance programs are based on the appraised value of your home, the FHA HECM mortgage limit of $625,500 or the sales price whichever is lower. Over the life of the loan, you will also be charged an annual mortgage insurance premium that equals 1.25% of your mortgage balance.

Mortgage Insurance Premium

One of the costs you will incur with a FHA reverse mortgage is a mortgage insurance premium. This pays for the mortgage insurance which guarantees that you will receive expected loan advances by guaranteeing the reverse mortgage with the lender. You can finance the mortgage insurance premium as part of your loan but it will reduced the net amount of cash that you can receive.

Third Party Charges

Closing costs incurred from third parties can include the appraisal fee, costs of the title search, insurance premiums, charges for any needed surveys, inspections charges, recording fees, mortgage taxes and the cost of an credit checks. Other fees may be incurred as deemed appropriate.

Origination Fee

Another fee you will pay is an origination fee. This compensates the lender for processing your Reverse Mortgage. A lender can charge a Reverse Mortgage origination fee of up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000 the lender can charge 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. Reverse Mortgage origination fees are capped at $6,000. These fees are usually negotiable between you and the lender.

Interest Rate

You can choose a fixed rate or an adjustable interest rate loan. If you choose an adjustable interest rate, you can choose to have the interest rate adjust monthly or annually.

Lenders may not move annually adjusted Reverse Mortgage by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted Reverse Mortgage.

Servicing Fee

Lenders or their agents provide servicing throughout the life of the Reverse Mortgage. Servicing the loan includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30.00 if the loan has an annually adjusting interest rate and $35.00 if the interest rate adjusts monthly. At loan origination, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month your loan is in effect the monthly servicing fee is added to your loan balance.

FHA rules are subject to change. These were the guidelines at the time this article was written - February 5, 2012. Please check with the applicable agent or agency to ensure that they are still current before making any buying decisions.

Sam S. Spade is the Manager of The FHA Condos Approval Company - They can get Your Condos HUD/FHA Approved So You Can Offer FHA Financing! According to DQ News - 33.4% of the purchase mortgages used in 20 of the largest metro areas were FHA-Insured. The FHA Condos Approval Company Can Get Your Condo Community FHA Approved or You Pay Nothing.

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Using A Reverse Mortgage To Pay for Long-term Care and Avoid A Nursing Home

Alternatives to Long Term Care Insurance: Using a Reverse Mortgage and Other Methods to Pay for Long-term Care Costs

Because long-term care insurance requires you to be in good health, this planning option is not available to everyone, especially older applicants for whom the premiums may also be prohibitive. If you are at least 62 years of age and you own your home, you could use a reverse mortgage to pay for care at home or for a long-term care insurance policy that otherwise may be unaffordable.

A reverse mortgage is a means of borrowing money from the amount you have already paid for your house. You are freeing up money that would otherwise only be available to you if you sold the house. You can stay in the house until you die, without making monthly payments. The loan is repaid when the borrower dies or sells the home. The balance of the equity in the home will go to the homeowner's estate.

Payments can be received monthly, in a lump sum or the money can be used as a line of credit. The funds received from a reverse mortgage are tax-free.

While the eligibility age is 62, it is best to wait until your early 70's or later. The older the borrower, the larger the amount of equity available. There are maximum limits set by the federal government each year as to how much of the equity can be borrowed. Usually only about 50% of the value of the home is made available in the form of a reverse mortgage.

You can use the funds from a reverse mortgage to cover the cost of home-health care. Because the loan must be repaid if you cease to live in the home, long-term care outside the home can't be paid for with a reverse equity mortgage unless a co-owner of the property who qualifies continues to live in the home.

Use Your Home to Stay at Home Program 

The National Council on the Aging, with the support of both the Centers for Medicare and Medicaid Services (CMS) and the Robert Wood Johnson Foundation, is laying the groundwork for a powerful public-private partnership to increase the use of reverse mortgages to help pay for long-term care. The ultimate goal of the Use Your Home to Stay at Home(TM) program is to increase the appropriate use of reverse mortgages so that millions of homeowners can tap home equity to pay for long-term care services or insurance.

Reverse Mortgages Can Help with Long-Term Care Expenses, Study Says

A new study by The National Council on the Aging (NCOA) shows that using reverse mortgages to pay for long-term care at home has real potential in addressing what remains a serious problem for many older Americans and their families.

In 2000, the nation spent $123 billion a year on long-term care for those age 65 and older, with the amount likely to double in the next 30 years. Nearly half of those expenses are paid out of pocket by individuals and only 3 percent are paid for by private insurance; government health programs pay the rest.

According to the study, of the 13.2 million who are candidates for reverse mortgages, about 5.2 million are either already receiving Medicaid or are at financial risk of needing Medicaid if they were faced with paying the high cost of long-term care at home. This economically vulnerable segment of the nation's older population would be able to get $309 billion in total from reverse mortgages that could help pay for long-term care. These results are based on data from the 2000 University of Michigan Health and Retirement Study.

"There's been a lot of speculation whether reverse mortgages could be part of the solution to the nation's long-term care financing dilemma," said NCOA President and CEO James Firman. "It's clear that reverse mortgages have significant potential to help many seniors to pay for long term care services at home."

According to the study, out of the nearly 28 million households age 62 and older, some 13.2 million are good candidates for reverse mortgages.

"We've found that seniors who are good candidates for a reverse mortgage could get, on average, $72,128. These funds could be used to pay for a wide range of direct services to help seniors age in place, including home care, respite care or for retrofitting their homes," said Project Manager Barbara Stucki, Ph.D. "Using reverse mortgages for many can mean the difference between staying at home or going to a nursing home."

Seniors can choose to take the cash from a reverse mortgage as a lump sum, in a line of credit or in monthly payments. If they choose a lump sum, for example, they could pay to retrofit their home to make kitchens and bathrooms safer and more accessible - especially important to those who are becoming frail and in danger of falling. If they choose a line of credit or monthly payments, an average reverse mortgage candidate could use the funds to pay for nearly three years of daily home health care, over six years of adult day care five days a week, or to help family caregivers with out-of-pocket expenses and weekly respite care for 14 years. They could also use it to purchase long-term care insurance if they qualify.

"Up until now, though, most of these seniors have not tapped the equity in their homes -- estimated at some $1.9 trillion -- to pay for either preventive maintenance or for services at home," noted Peter Bell, executive director of the National Reverse Mortgage Lenders Association. Noting that the average income of men aged 65 and over is $28,000 and $15,000 for women, he added, "This study shows that unlocking these resources can help millions of 'house rich, cash poor' seniors purchase the long-term care services they feel best suit their needs."

What is it about Reverse Mortgages that instills apprehension in some Older Americans?

Fears persist despite the enthusiastic endorsement of groups such as AARP and the National Council on Aging.

A major reason is likely to be the fact that a lot of misinformation has been circulating about this very attractive financial tool for those that qualify. Older Americans often consult friends and relatives who are likely to be misinformed themselves.

Since the Reverse Mortgage can be a beneficial and safe alternative for Older Americans, it's important to correct the major misconceptions associated with them and allow older homeowners to make an informed decision about whether a Reverse Mortgage makes sense for them.

Probably the most common misconception is " If I obtain a reverse mortgage I might lose my home". I frequently hear this when I'm advising elders about planning options related to long-term care. The fact is that the federal government requires that the home must stay in the name of the borrowers only. Since the Reverse Mortgage is a mortgage, a lien is placed on the property like all other mortgages. This assures that the lender will eventually be repaid but for only the amount owed which is principle, interests, and closing costs, just like any other mortgage.

The great advantage of this type of mortgage is that -unlike traditional mortgages-there are no monthly payments. Not having to worry about monthly bills has to be one of the greatest gifts one could wish for in retirement.

More than ninety-five (95) percent of Reverse Mortgages approved are the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) loans. These loans are guaranteed the full protection of the United States Government through use of a two (2) percent insurance fee paid on all FHA Reverse mortgages.

Another misconception is that Reverse Mortgages are costlier than other mortgages. The truth is that closing costs average only about one (1) percent more than a traditional FHA mortgage would be on the same property. The Reverse Mortgage may even be lower in cost due to the fact that conventional mortgages can charge more than the two (2) percent origination fee allowed on all Reverse Mortgages.

Another cost factor is of course, the interest rate. The FHA Reverse Mortgage interest rate is based on the one (1) year United States Treasury note instead of the prime rate, which most conventional mortgages use as their base. This gives the FHA Reverse Mortgage an interest rate LOWER than most adjustable conventional mortgages.

Another myth about reverse mortgages is that the home goes to the lender after the loan becomes due at death or when the last survivor permanently leaves the home. In my experience, the loan amount of approved is generally about half of the appraised value of the home. (The older the homeowner, the greater the amount available for borrowing because it's assumed that the funds will be available for a shorter period.

All of the equity left after payment to the lender, goes to the estate or heirs of the borrower. This is exactly the same procedure followed with regular conventional mortgages.

Since the Reverse Mortgage is a "non-recourse" loan the most the estate will be required to pay to the lender is the value of the home at the time of repayment. This is true even if the home value decreased or the borrower lived to an unusually old age.

Another attractive feature of this financing tool is that the requirements for getting a Reverse Mortgage are not nearly as restrictive as other loans. Since no re-payment is made as long as one (1) surviving borrower remains in the home, there are NO income or credit requirements. Another requirement is that both spouses must be sixty-two (62) or older with no upper age restriction. The only other requirement is that the borrowers alone must own the home with no others on the deed. The home may also be in a revocable trust as long as the eligible borrowers are the only trustees.

All property types are Reverse Mortgage eligible except manufactured (mobile) homes built before June 15, 1976 and co-operatives (Co-ops). Co-ops are expected to be eligible in the future when FHA issues final approval. Homes with existing mortgages that can be paid from the equity can obtain Reverse Mortgages.

Still another misconception is that a Reverse Mortgage is taxable and affects Social Security and Medicare. That is NOT the case. Reverse Mortgage proceeds are not taxable because they are not considered income but is, in fact, a loan.

It should be noted that Supplemental Security Income (SSI) and Medicaid might be affected if you exceed certain liquid asset amounts. We can show you how to structure the loan so that a Reverse Mortgage will not affect these benefits.

Now that the myths of Reverse Mortgage have been removed, a qualified homeowner may ask, how can I get more comprehensive information? Is your local bank the answer? Only a few lenders have been approved for participation by the federal department of Housing and Urban Development, which oversees the program. Most local and regional banks do not offer Reverse Mortgages.

AARP, the Federal National Mortgage Association, American Bar Association (ABA) and the National Council On Aging provide consumer information about reverse mortgages. The ABA passed a resolution supporting Reverse Mortgages in August of 1995.

If you would like to get specific information on a Reverse Mortgage for yourself or a family member, contact Bob O'Toole at 1-800-375-0595 or send me an e-mail to bob@elderlifeplanning.com

Bob O'Toole, President of Informed Eldercare Decisions, Inc. is a nationally known elder and disability care specialist. He currently serves on the board of directors of the National Association of Professional Geriatric Care Managers, and is a former editor of the Geriatric Care Management Journal.

Prior to founding Informed Eldercare Decisions, Inc, Bob worked for 10 years as a senior administrator in the Massachusetts Home Care System and for one of the leading private long term care consulting firms.

A frequent public speaker on aging issues, Bob has contributed chapters to two books on elder care and geriatric care management issues and has written numerous articles on the delivery of elder care in the private marketplace. His articles have appeared in Geriatric Care Management Journal, Health Insurance Underwriter, Inside Case Management, Journal of Compensation and Benefits and Workspan magazine.

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