Reverse mortgages are an increasingly popular way for seniors to live off the equity from their homes and stop making mortgage payments. This government program for seniors is helping them provide a way to combat the slowing economy.
This federal government program was developed by the Department of Housing and Urban Development (HUD) in 1987. The government calls it the Home Equity Conversion Mortgage or HECM, but Reverse Mortgage is a more common name. Reverse mortgages are federally insured and are a safe and secure financial tool for senior homeowners who are 62 years of age or older. The government allows the senior to always retain title and ownership of their home.
Since the year 2000, reverse mortgages have grown in popularity and have been a way to relieve a mortgage payment or have a steady source of monthly income
. As incomes become fixed and retirement funds become increasingly hard to find, seniors are discovering a reverse mortgage may be the perfect solution.
The flow of payments is reversed during the term of a Reverse Mortgage. The government pays the senior either by monthly payments, lump some or can be drawn upon when money is needed. However, the senior homeowner is responsible for insurance and property taxes, and to maintain the condition of the home.
Reverse mortgages apply the opposite principles of a traditional forward mortgage. Traditional mortgages gain equity in a home by making monthly payments, while a reverse mortgage turns equity into tax-free income or usable cash. Payments on the money owed are not required as long as the home is being lived in.
Many simply feel more secure with a larger monthly income or a line of credit to draw upon, without the burden of a home equity loan that must be repaid. Some are just tired of penny pinching and want to improve their quality of life.
The growth of reverse mortgages, it seems at this point, is limited only by consumers understanding of the product. Reverse mortgages, at their core, are not more complicated than most any other kind of loan. The money owed is never due unless both seniors pass away, sell the home or move out permanently.
