What is The New Reverse Mortgage?
Most folks credit Ronald Reagan for the birth of the Reverse Mortgage program in the late 1980s. However, the very first reverse mortgage was written to Nellie Young in Portland, Maine by Nelson Haynes of Deering Savings & Loan. Haynes designed this very unique type of loan to help the widowed wife of his high school football coach to stay in her home after losing her husband.
Related: The History of the Reverse Mortgage
President Reagan’s administration was responsible for the creation of the FHA insured Home Equity Conversion Mortgage. In 1988, HUD gains the authority to insure reverse mortgages through the FHA when President Ronald Reagan signs the reverse mortgage bill into law. The reverse mortgage government insured loan is established. In 1989, the first FHA-insured Home Equity Conversion Mortgage (HECM) is issued to Marjorie Mason of Fairway, Kansas by the James B. Nutter Company of Kansas City, Missouri.
The New Reverse Mortgage of Today
If you were to compare a 1989 Ford F-150 pickup with the 2018 model, you would see the improvements and refinements made over the past 28 years.
Both will get you from Point A to Point B but the newer model has more power, options and safety features than its older brother.
The same is true when comparing the Reverse Mortgage of 1989 with The New Reverse Mortgage of 2018.
The New Reverse Mortgage is a loan for seniors age 62 and older. It is also known by HECM(Home Equity Conversion Mortgages). Homeowners can convert their home equity into cash with no monthly mortgage payments. You will still be responsible for the payment of taxes, homeowner’s insurance and maintenance of the property.
Basically, rather than having to pay your monthly mortgage bills yourself, the lender will pay off your mortgage. You will receive payment in proportion to your home’s equity. The loan does not generally have to be repaid until 6 months after the last surviving homeowner moves out of the property or passes away. At that time, the estate typically sells the home to repay the balance of the reverse mortgage, and the heirs receive any remaining equity. The estate is not personally liable for any additional mortgage debt if the home sells for less than the payoff amount of the reverse mortgage loan.
If you are 62 years of age or older living in California and would like to stop worrying about mortgage payments, large bills, or would simply like to enjoy retirement to the fullest, this solution may be right for you.
The Options of The New Reverse Mortgage
1.The Retiree’s Equity Line of Credit (RELOC)
One of the most popular and flexible options, this type of loan allows you to draw from a line of credit whenever you like or receive your money as smaller monthly sums. Monthly payments will also give you access to the line of credit, should it become necessary. Unlike the traditional HELOC the available funds of your RELOC cannot be frozen in the event home values decline.
2.Lump Sum (Fixed Rate)
This is a convenient option for people who need to pay off their existing mortgage, meet medical bills, or satisfy other financial obligations. After closing, the money arrives as one lump sum. The downside is if you are receiving certain government benefits like Medicaid or Supplemental SSI these funds could impact your eligibility
3. The Personal Retirement Paycheck
Sometimes referred to as the Term or Tenure options, the Retirement Paycheck allows you to choose a fixed payment for a set period of time (term) or choose a payment for the remainder of the time you live in your home (tenure). Like the other program options the amount is based on equity, your age and interest rates.
Related: Create your own Retirement Paycheck
4. The New Reverse Mortgage for Purchase
In 2009, The HECM for Purchase is introduced. For the first time in reverse mortgage history, borrowers are allowed to purchase a new home without paying monthly mortgage payments.
The New Reverse Mortgage isn’t for everyone…But it could be!
If you’re still wondering if a Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.