Seniors who are at least 62 years of age and want to buy a new home can obtain a reverse mortgage and purchase a residence at the same time.
However, because of depressed home prices, since Oct. 1, 2009, borrowers who obtain reverse mortgages get 10% less than they would have before that date.
That change compensated for an estimated $800 million deficit in home prices. And now there are rumbles of even more reductions.
Reverse mortgages enable people 62 or older to use the equity in their homes and receive lump-sum payments, periodic checks, a line of credit or a combination of the three.
Lenders are repaid from the sale of the home when the borrower dies or moves. The maximum reverse mortgages backed by the Federal Housing Administration has been raised to $625,000 from $417,000. Origination fees are capped at $6,000.
The lender can never force senior homeowners out of their residences as long as the property taxes and the homeowners insurance are kept current and the property is maintained.
Recorded like any first mortgage, reverse mortgages mean that the residence cannot secure any other financing.
But if there is a small mortgage balance, such as less than 25% of the home’s market value, the borrower can still probably qualify by using a reverse-mortgage lump sum to pay off the old mortgage.
Because most senior citizens own their residences free and clear or with a small mortgage balance, this is usually not a problem. However, a mortgage balance over 40% of the home’s appraised value usually makes a reverse mortgage unavailable.
Greedy prospective heirs often discourage reverse mortgages because they feel their inheritance is being spent. Others encourage their senior citizen parents to obtain a reverse mortgage to enjoy their “golden years” in financial comfort.