For years the elderly have had the option of a reverse mortgage available to them in the event of a financial crisis. However the national effects of financial crisis will now include tighter guidelines surrounding reverse mortgages.
What is a Reverse Mortgage?
A reverse mortgage is a home loan that allows the elderly to borrow from home equity to supplement income or pay off debt. A reverse mortgage is different from a home equity loan because borrowers do not have to pay the money back until they no longer use that home as their primary residence. In the past a reverse mortgage has helped solve retirement issues for elderly.
According to the U.S. Department of Housing and Urban Development, you can qualify for a reverse mortgage if you are 62 years of age and own your home outright or have a very small balance remaining that can be paid off with the money from the reverse mortgage.
How Does a Reverse Mortgage Solve Retirement Issues for the Elderly?
The reason that a reverse mortgage works so well for those feeling the effects of financial crisis is that you can tailor the payments to your needs as a debtor.
Some people choose to take monthly installments over time to supplement income while others choose a large payout to pay off debts. According to the U.S Department of Housing and Urban Development there are five payment plan options for a reverse mortgage:
Tenure – Scheduled monthly payments that will be distributed as long as at least one borrower lives and occupies the property as a main residence.
Term – Set monthly payments distributed for a set period of time.
Line of Credit – You can use a reverse mortgage just like a line of credit which allows you to borrow at times and in the amount of your choosing until the line of credit is exhausted.
Modified Tenure – This loan set up allows you to get monthly payments and also use the line of credit option as long as you live in the home.
Modified Term – This is a mix of payments and a line of credit for a fixed period of time.
The reverse mortgage has helped the elderly manage their finances for years, however the recent decline in real estate values has forced a fresh look at the loan program. According to an article in the Chicago Tribune, the system has turned into more of a lifeline for the elderly.
"The National Council on Aging says one-third of its counseling clients have mortgage debt that exceeds 50 percent of the value of their home. Using a reverse mortgage to pay off the existing mortgage and other household debt leaves these borrowers with little equity to fall back on."
The struggles facing the elderly today are different than ever before. The effects of financial crisis have left many unable to pay taxes and insurance despite the help of a reverse mortgage. Because of this risk the Federal Housing Administration has created an assessment test for borrowers. This will evaluate their ability to produce living expenses and also pay taxes and insurance. If the borrower does not pass the assessment they will need to take a portion of the money from the reverse mortgage and use it to create an escrow account to ensure that two or three years of escrow payments are covered.
The changes to the system are in the planning stage and according to the Chicago Tribune it’s possible that everyone who applies for a reverse mortgage will need to set up an escrow account. The article goes on to recommend that seniors visit benefitscheckup.org where they can find tax relief programs across the country. This website can help the elderly save thousands a year in expenses which will help free up money that can be used for living expenses.
The effects of financial crisis on the elderly are serious. If you are of retirement age and struggling with debt it’s important to take the time to discuss all you options. Suburban Legal Group offers a FREE Legal Evaluation to give you the opportunity to speak with a reputable attorney about the best way to manage your debt and work towards a debt free retirement.
DISCLAIMER: All information on this website are provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.