Offered through the department of Housing and Urban Development's (HUD) Home Equity Conversion Mortgage program (HECM), reverse mortgages were introduced by the government in the 1960's. Though they have not been wildly accepted by the public, their numbers have continued to grow over the years, gaining popularity in areas such as Denver, Phoenix, Florida and California, locales with higher populations of senior citizens. The National Reverse Mortgage Lender's Association (NRMLA) reports recently that the number of federally-insured reverse mortgages offered through HUD rose 77% in one federal fiscal year.
Proponents of reverse mortgages say that these kinds of loans are an available source of cash for seniors on fixed incomes, giving borrowers the ability to use their homes as an investment. But like any investment, especially one that impacts an individual with limited earning potential, all aspects of the reverse mortgage must be taken into careful consideration before knowing whether or not it is the right choice.
What is a Reverse Mortgage?
A reverse mortgage is a specialized loan insured through HUD that caters to senior citizens 62 years of age and older. It allows the homeowner to convert the equity in their home to cash, which can be accessed as one lump payout at closing, monthly income to the borrower, or a combination of both. How much cash one receives depends on a variety of factors such as the borrower's age, the current interest rate, and the lesser of either the appraised value of the home or the HECM FHA mortgage limits.
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