Guide Helps Consumers Decide if Reverse Mortgage A Good Option

With increasing interest in reverse mortgages as a potential source for retirement income, the MetLife Mature Market Institute (MMI) has released a free guide, The Essentials: Reverse Mortgages, to help consumers make informed decisions regarding the use of home equity to help fund one’s retirement.

The guide follows The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, which was released by the MMI earlier this year.  That study found that in today’s economic environment, older homeowners are increasingly seeking new sources of retirement income and tapping into their housing wealth in greater numbers, often using home-equity loans or reverse mortgages.  The guide will help individuals take a comprehensive approach to ensure that, when needed, the value of their home is used appropriately and effectively to deal with the growing uncertainties of retirement.  Reverse mortgages are available only to those age 62 and older.

“Reverse mortgages can allow older individuals to receive funds while they continue to live in and own their homes,” said Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute.  ”Our guide is a general introduction to reverse mortgages.  It explains important terminology, presents basic issues, and answers frequently asked questions.  While a reverse mortgage can be a valuable tool for many older homeowners, it may not be right for everyone.  We suggest that individuals thinking about a reverse mortgage consult with a certified U.S. Department of Housing and Urban Development (HUD) reverse mortgage counselor and a reverse mortgage lender to determine if the product is right for them and understand the details as to how it would work in their particular situation.”

The MetLife study on home equity and reverse mortgages, produced in conjunction with the National Council on Aging (NCOA), found that 35% of older Americans see their homes not just as secure places to live, but also as collateral for a loan.  About 14% have taken cash out of their house through a home equity loan or reverse mortgage.  The use of home equity can be a viable source of income in retirement to help individuals enhance or maintain their lifestyle.  Study findings indicate that older homeowners are using home equity to increase income security, enhance financial resilience to deal with unexpected expenses, and improve debt management, among other things.

The Essentials: Reverse Mortgages provides the following information for those considering a reverse mortgage as an option:

• 95% of reverse mortgages are Home Equity Conversion Mortgages (HECM).  They are insured by the Federal Housing Administration (FHA).

• The amount one can borrow depends on age, type of reverse mortgage, current interest rates, location of the home, value of the home, and FHA lending limits in that area.  For HECM loans, there is currently a $625,500 borrowing cap for most areas.

• The costs associated with a reverse mortgage typically include an origination fee, other closing costs, and for HECM loans, both an upfront mortgage insurance premium and an ongoing premium.  These costs can be included in the loan and paid (with interest) when the reverse mortgage becomes due.  A monthly service fee may also apply.

• With a reverse mortgage there are no monthly mortgage payments.  However, as long as borrowers still live in and own their home, they continue to pay their property taxes, homeowner’s insurance, and any home maintenance.  The loan, including accrued interest and any service fees, becomes due when the borrower (or last borrower for a couple) dies, sells the house, moves permanently to a new residence, or fails to live in the home for twelve consecutive months.

• Borrowers may choose to receive funds as a lump sum payment, where the cash will be available immediately, in equal monthly payments for a fixed number of months (or for as long as one borrower lives in the home), as a line of credit to draw funds as needed, or any combination of these options.

• Interest rates for most reverse mortgages are tied to a financial index and vary according to market conditions.  Some financial institutions offer both fixed- and variable-rate reverse mort­gages.

The Essentials: Reverse Mortgages can be found at www.maturemarketinstitute.com under “In Focus.”  You may also order a printed copy by sending an email to MatureMarketInstitute@MetLife.com, calling 203-221-6580, or writing to MetLife Mature Market Institute, 57 Greens Farms Road, Westport, CT 06880.