(Fortune Magazine) -- The housing rescue package that Congress scrambled to pass in July was aimed primarily at stemming foreclosures and shoring up Fannie Mae and Freddie Mac. But it also contains provisions that make reverse mortgages a better deal for older homeowners who want to turn their equity into cash.
Lawmakers are paying attention to reverse mortgages because these once-marginal products have exploded over the past decade, thanks to low interest rates and rising home values. The federal government, which backs more than 90% of all such loans through the Home Equity Conversion Mortgage (HECM) program, guaranteed 107,400 reverse mortgages last year, up from 7,900 in 1998. What's more, an industry group estimates that even after the drop in housing prices, seniors' equity in their homes was worth $4.2 trillion at the end of 2007. With slimmer savings and pensions than their parents had, more boomers will probably be turning to reverse mortgages when they retire. But these products are much more complicated than your garden-variety loan, so before you rush to download an application, you have to do some homework.
Here are the basics
Reverse mortgages are like home-equity loans, with a few key differences. First, they're available only to people age 62 and older. The amount you can borrow depends on your age, the value of your home, and interest rates (check out AARP's calculator at rmaarp.com for an estimate). You can choose to receive your money in a lump sum, monthly installments, or a line of credit. There are no monthly payments to make - and therefore you don't have to meet an income requirement to qualify.
In fact, you needn't repay the loan until you move out of your house, sell it, or die: The debt is settled with the proceeds from the sale of your home. If there's money left over, it goes to you or your heirs. But what if your house sells for less than what you owe? (That's not an idle question in a time of plunging home prices.) Don't worry. The federal government covers any shortfall for HECM loans, and for others the mortgage holder simply eats the loss.
Read more....
Lawmakers are paying attention to reverse mortgages because these once-marginal products have exploded over the past decade, thanks to low interest rates and rising home values. The federal government, which backs more than 90% of all such loans through the Home Equity Conversion Mortgage (HECM) program, guaranteed 107,400 reverse mortgages last year, up from 7,900 in 1998. What's more, an industry group estimates that even after the drop in housing prices, seniors' equity in their homes was worth $4.2 trillion at the end of 2007. With slimmer savings and pensions than their parents had, more boomers will probably be turning to reverse mortgages when they retire. But these products are much more complicated than your garden-variety loan, so before you rush to download an application, you have to do some homework.
Here are the basics
Reverse mortgages are like home-equity loans, with a few key differences. First, they're available only to people age 62 and older. The amount you can borrow depends on your age, the value of your home, and interest rates (check out AARP's calculator at rmaarp.com for an estimate). You can choose to receive your money in a lump sum, monthly installments, or a line of credit. There are no monthly payments to make - and therefore you don't have to meet an income requirement to qualify.
In fact, you needn't repay the loan until you move out of your house, sell it, or die: The debt is settled with the proceeds from the sale of your home. If there's money left over, it goes to you or your heirs. But what if your house sells for less than what you owe? (That's not an idle question in a time of plunging home prices.) Don't worry. The federal government covers any shortfall for HECM loans, and for others the mortgage holder simply eats the loss.
Read more....
