Reverse Mortgage Popularity Skyrockets

Reverse Mortgages are gaining in popularity as the aging population in America grows larger each year. In case you are not familiar with what a reverse mortgage is, here is a short definition:

A reverse mortgage is a unique type of loan or financial planning tool that allows senior homeowners that are 62 years or older to access the equity that they have built up in their homes. A reverse mortgage is unlike any other type of mortgage, because a reverse mortgage requires no monthly payments to be paid to the lender. It also does not require the senior homeowner to qualify for the loan based on credit or income.

The equity that is paid to the homeowner can be taken as a lump sum, a set monthly amount or a combination of the two. The money is non-taxable and does not adversely affect the senior’s Social Security or Medicare benefits. The amount of money that a senior can qualify for is determined by the age of the youngest owner on title, the value of the property and it’s location, the interest rate at the time of application, and the amount of equity the senior has built up in the
property.

One of the biggest criticisms you will hear when you first look into the pros and cons of getting a reverse mortgage is that the closing costs are expensive. Well at face value, that seems like a true statement. If you compare the closing costs of a reverse mortgage to the closing costs of a traditional forward mortgage, you will find that a reverse mortgage can cost more than twice as much in fees than a forward mortgage. But lets take a moment and analyze why this is the case. Income is paid to the homeowner and is guaranteed for as long as the seniors remain in the home, regardless of how long that is. The reason that the government can stand behind such a huge guarantee like that, is because they have essentially required every reverse mortgage borrower to contribute to the insurance fund that will payoff the lenders in case of a shortfall. So instead of your estate or your heirs having to make up the shortfall, the insurance fund is tapped to make the lender whole. If this insurance fund was not there, you can bet there would be few, if any, lenders making reverse mortgages with the safeguards that are in place today. Each FHA-HECM reverse mortgage that is initiated today carries a 2% fee for this insurance fund which is a part of the overall closing costs associated with a reverse mortgage. So, yes the costs are higher for a reverse mortgage, but they are justified in order to make the reverse mortgage the valuable financial planning tool that it is for many seniors today. Many seniors would be strapped for money if they did not have the ability to tap into one of their biggest assets, their home equity.

Reverse Mortgages are becoming more and more popular by the day, as more seniors are becoming educated about how they really work. There have been a lot of reverse mortgage myths perpetuated over the years as well as a lot of improvements made to the reverse mortgage products that are currently offered. The number of federally insured reverse mortgages made in the United States increased by 77% in the fiscal year 2006 compared to 2005. More reverse mortgage products are being developed and will be introduced to the market place in upcoming months. You can see here how much money you can get from a reverse mortgage.

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