Older Americans who qualify may find reverse mortgages to be a viable option not only for staying put in their current residence but also for purchasing a new home. The concept of reverse mortgages dates back to 1961 but gained prominence with the enactment of the Housing and Community Development Act in 1988 under President Ronald Reagan. Over the years, the U.S. Department of Housing & Urban Development and the Federal Housing Administration have fortified these financial instruments with federal regulations, insurance coverage, and stricter eligibility criteria.
Today, eligible seniors, aged 62 and above, can leverage reverse mortgages to finance a new home purchase while meeting obligations such as real estate taxes, homeowner insurance, and property maintenance. However, this option isn't available for cooperative apartments, as noted by Steve Resch, Vice President of Retirement Strategies at Finance of America Reverse, headquartered in Tulsa, Oklahoma.
Those who stand to benefit most are homeowners seeking to tap into home equity without disrupting their financial equilibrium. Reverse mortgages alleviate the burden of principal and interest payments as long as the borrower resides in the property, making them particularly advantageous for those concerned about outliving their retirement savings. The loan amount, typically ranging from 35% to 60% of the home's value, hinges on factors like the youngest borrower's age, current property appraisal, and prevailing interest rates, explains David Tourtillott, a loan originator at Homestead Mortgage LLC in Hyannis, Massachusetts.
One attractive feature is the option to leave available funds in a line of credit, which can appreciate over time and be utilized for various expenses, including healthcare, homeowners' association fees, or even building an accessory dwelling unit (ADU), according to Resch. Upon selling the property, any remaining funds are directed toward repaying the reverse mortgage company.
While reverse mortgages offer financial flexibility, some potential drawbacks include closing fees equivalent to 2% of the appraised value, in addition to origination and attorney fees. Resch advises against opting for reverse mortgages if the plan is to reside in the property for less than 10 years.
Is a reverse mortgage smart? (2024, April 18). www.nar.realtor. https://www.nar.realtor/magazine/real-estate-news/sales-marketing/is-a-reverse-mortgage-smart?utm_term=7A9C98BE-E55B-4EA9-B1D8-DEBDDBDC1D48&lrh=87922e5edf7af3051fd0ac2d5c1847febc6cae50fe67ac47f70548e54f9fde65&utm_campaign=3BFA9068-DFBC-477B-BC94-C168B9A999F1&nwsltr=navnar&utm_content=DC10DA11-5D49-4246-AB43-AA2B5D0851CC
