Guest real estate column: Reverse mortgages an option for some
| Friday, May 29 2009 12:38 PM
Last Updated Friday, May 29 2009 12:38 PM
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Alex Horvath / The Californian
Tonya Howze
A home mortgage that requires no income, no credit and no monthly payment. How could that be? It’s been around as long as banking, and yet until a few years ago few of us had ever heard of a reverse mortgage. These days most of us have heard the term; however, the way a reverse mortgage works is still a mystery to most.
“I will lose my home to the bank.” “If I die my children will not get my home.” “At some point I will outlive the mortgage and have to leave my home.” Thankfully, none of these statements are true.
A bit of history: around 1996, FHA changed the way the banking industry approached reverse mortgages. FHA now guarantees most reverse mortgages. Borrowers must be 62 years of age, maintain the home as their primary residence, and continue to pay property taxes and homeowners insurance.
The lender offers the borrower a portion of the appraised value of the home, based on the borrower’s age, to use for as long as he or she lives in the home. No repayment is expected until the borrower or borrowers have died or sold the home. The money available may be used to pay off an existing mortgage, and/or give the borrower a lump sum of money, or in many cases, the bank sends the borrower a monthly check.
Another option is to leave the money in a line of credit and take it out as needed. The advantage to this is when the day comes for the loan to be repaid, all that is due is the money used and the interest added during that time. The home stays in the borrower’s name and the reverse mortgage lender simply assumes the position of lien holder as with any other mortgage. There are no restrictions on what you can do with your money.
The cost of doing a reverse mortgage is about 5 to 7 percent of what the home appraises for. It is recommended that you plan to stay in the home for two years or longer to get the best value from this cost. Reverse mortgages can be a great addition to planning and living a more enjoyable life and retirement, giving you more options and freedom to remain independent in the comfort of your own home.
— Tonya Howze is a broker and co-owns the Truxtun Avenue branch of Reverse Mortgages of California.
