Older Americans Choose to Use Reverse Mortgages to Get Cash Flow during retirement
An increasing number of older Americans are turning to the use of reverse mortgages as a way to increase their cash incomes during retirement, to avoid financial hardships. These figures came into light after the recently released HECM data (Home Equity Conversion Mortgage) from the HUD (Department of Housing and Urban Development).
The data says that the number of HECM reverse mortgages increased by about 7,000 during the calendar year 2008. The HUD data also showed that the number of reverse mortgage loans taken in March of 2009 increased 24% as compared to the figures for February 2009, and 11,261 reverse mortgages were made during March 2009.
For those senior home owners facing foreclosure, reverse mortgages are seen as a way to get additional income, one way which does not need a qualifying credit source and a source of money that does not have any income or repaying ability requirements.
Reverse mortgages first started appearing in 1987, after the Housing and Community Development Act was passed. By using a reverse mortgage, a home owning senior aged 62 or above can get money by accessing home equity (tax-free) and there is no requirement of paying back the amount until the senior passes away or wants to sell the property. With a reverse mortgage, monthly re-payments of principal or interest are not needed. The home owner always retains the title to the property, and the lender cannot force the borrower out of the home that has been reverse mortgaged.
The principal amount of the loan and interest becomes re-payable when the senior home owner moves out of the home or passes away. The borrower or the surviving heirs can repay the reverse mortgage loan by selling the home, or they may retain the property and repay the lender using any other funding method. A HECM-insured reverse mortgage is known as a non-recourse loan, which means that the home owner (borrower) can never owe more than the current market price of the home at any point of time.
The amount of cash available from a reverse mortgage is arrived at basing the age of the borrower, the appraisal value of the home, and the criteria set by the FHA (Federal Housing Authority). There are no credit score requirements and no income requirements and the money from a reverse mortgage may be used by the home owner in any manner he or she wants to.
The HECM loan limit was increased to a national ceiling of $625,500 for the year 2009. This new law makes reverse mortgage a very attractive proposition for home owners. A Reverse mortgage can be used to buy a new residence (HECM for purchase program) by financing the new home purchase with the proceeds of a reverse mortgage.
