Home loans: Reverse mortgage

The purchase of your new home could be done with no mortgage payments! The Federal Housing Administration now allows seniors to use reverse Mortgage program which is revolutionizing the mortgage market. This new addition to the existing government program allows senior citizens to buy a home without having to pay monthly repayments. Thus they can move into a new home without having to pay any mortgage payments for the rest of their lives.

Under reverse mortgage program seniors applying can buy single family residence, condos, townhouse, multi family houses and manufactured homes. The minimum age to be classified under senior citizen section is 62 years. The property that is used for reverse mortgage should be occupied by the applicant as his primary residence. Reverse mortgage does not require an income or even a credit score to qualify. If your credit history is bad, still it doesn’t matter. The applicant can be the owner of four dwellings and not more if he wants to qualify and avail a reverse mortgage on any one.

This mortgage allows seniors to purchase new homes just like they do with cash. Once the home is purchased they have no need to pay monthly installments on the balance. The down payments are based on the age of the seniors. The amount of down payment becomes lesser as the age of the senior increases. The age is calculated on the younger senior in the case where a married couple is being considered.

Seniors can avail tax deductions by paying installments once the program is in place. They can treat it like a normal mortgage and make regular payments or they can reap the benefits of a reverse mortgage. The decision is completely in their court. It is seen that most seniors prefer to keep money in their pockets and enjoy reverse mortgage benefits, the best being that it will never be foreclosed if senior is living in the home.

The home equity is used to release a big lump sum or multiple payments. The owner has no obligations to repay in his life time. Once he dies or he goes into aged care, the house is sold and money used to repay mortgage. It is very similar to annuity where interest and principle is paid with home owner’s equity.

In reverse mortgage the debt on the property increases every month. If the value of the property increases after the taking of reverse mortgage then the borrower is eligible to take out a second or third reverse mortgage. Some countries prefer that reverse mortgage remains the only loan taken out on a property. The amount of money granted depends on factors like interest rate prevalent at the time of taking the reverse mortgage, age of senior, method of money taken e.g. line of credit, lump sum; location of property, appraised value of property etc. These factors contribute to calculation of Total annual Lending Cost (TALC). Home owners should keep taxes and insurance payments up to date. The lapse of payment can lead to default of reverse mortgage.