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Different reverse home mortgage lenders have different rules, but generally a senior must have equity left in his home, and own capital, against which the reverse home mortgage loan will be taken. This equity works as a guarantee.

1. The Target Of The Reverse Home Mortgage Is To Help Seniors.

This principles can be seen in all terms concerning the reverse home mortgage loans. They are very easy to get and very flexible loan types. They offer financial help for immediate needs of the disposable money, for bigger needs, like the home repairs or help for occasional needs in the form of the credit lines. A senior can select, how he wants a lender to pay him.

2. The Reverse Home Mortgage Loan Will Be Taken Against The Equity Of The Home.

There is a clear philosophy. When seniors have saved money during the years, when they worked hard and paid their mortgages, now is the time, when they can use part of these equities for their new financial needs. So the money goes in a reverse way.

This philosophy has also other benefits. When the reverse loans are taken against the home equities, seniors do not need a good credit information nor monthly incomes. This is great, because now those seniors, who have very limited incomes can get a loan and to increase their monthly incomes.

3. Your Credit Information Has No Meaning.

People have bad credit scores for many reasons but for seniors they have even worse influences. The reverse mortgage loans are excellent for senior people, who have bad credit information and additionally difficulties with their monthly expenses.

The bad credit information is especially bad for a senior. But a bad credit information is one thing and the home equity is another thing. If a senior has a home equity left, he is lucky, because that and only that he can use to get a reverse mortgage loan.

4. Your Income Information Has No Meaning.

Can you imagine, that you can get a loan without any regular monthly income and even if your credit record shows very bad figures? This is one of the great benefits, which the reverse home mortgage loan has. The reason is, that the whole loan is taken against the equity of the home and you can never owe more than the value of the home. So the incomes have no meaning.

As you can see from the above qualifications, the reverse mortgage loans are almost for every senior. The key point is, that a senior owns a home, where he has equity left. That is the own capital against which the reverse mortgage loan is taken.

It is also extremely important that a senior meets the reverse mortgage counselor, who is an expert to guide him about his special needs. That is the most important meeting, because the loan comes almost automatically. The counselor meeting requires, that you will prepare yourself correctly and make lots of questions.

As the baby-boomers prepare for retirement reverse mortgages are going to be the next mortgage boom according to most analyst. The baby boom began in 1946 and continued through 1964. During those 19 years, 76 million people were born. As this segment of America begins to retire a large portion of them will need to rely on their homes equity to make "ends meet." How they access that equity will be the mortgage industries primary focus in the years to come.

The traditional "forward" mortgage has the homeowner borrow the money by way of a traditional mortgage or home equity line and make payments on that amount. The homeowner takes the money, places it in a safe interest bearing account and uses the money to augment their income. The interest that is earned on the money is used to supplements the monthly payment that the homeowner has to make. The problem is that the interest shrinks as the money is used and the mortgage payments stay the same.

Reverse mortgages have actually been around since 1989, but their popularity is skyrocketing as a result of the wave of baby-boomers that are retiring. These mortgage products are safe and beneficial when applied to the right homeowner and circumstances. Lendfast.com recommends that borrowers use FHA-insured Home Equity Conversion Mortgage (HECM) when considering these mortgage products. Getting a reverse mortgage from the private sector may include more headaches and costs. However, as with financial product, there are some dangers that you need to be aware of; here are the top three reverse mortgage pitfalls to lookout for.

1) Repayment and Forfeiture – Most, if not all reverse mortgages will not require you to make payments or repay the loan for as long as you live. Once you pass on your heirs will have the opportunity to remortgage the debt or sell the house and repay the loan. If the home has equity above the amount owed to the bank your heirs will receive those proceeds. If the home is "upside down" your heirs have no obligation to repay the debt, but they will forfeit the home unless they pay the amount owed.


However FHA rules state: "When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender." The danger here is "no longer use it for your primary residence. This means if you have to go to a hospice, nursing home or intend to live in another home and use the house as a second home the bank will call the debt due. This is definitely something you want to consider before taking out a reverse mortgage.

2) Cost and Interest Rates – At the inception of reverse mortgages they were almost exclusively offered with adjustable interest rates. Adjustable rates are still standard practice and you are almost certain to be offered this option to begin with. Don't! There are fixed rate programs available now and at today's rates adjustable rates are only going to go up in the future. It's easy to be lured into an adjustable rate because lower interest rates in a reverse mortgage have higher monthly payments. If the interest rate increases your payment decreases, as does the time frame you have to draw on the mortgage. Just remember, adjustable interest rates are a gamble and Las Vegas wasn't built on winners.

A considerable downside to reverse mortgages is the high up front costs. This cost can be compensated by a lower interest rate over time, but some seniors choose other options to draw on their home equity. Reverse mortgage closing costs should be about the same as most loans except the 2% mortgage insurance premium that FHA charges to insure the loan. FHA insures the lender will be paid regardless of the home's value when and if the lender has to take over the property.

At Lendfast.com we have noticed that many homeowners are paying higher closing costs for reverse mortgages than traditional forward mortgages. We believe this is because most homeowners are unfamiliar with reverse mortgages and tend to not shop around as with traditional mortgages. This is why we recommend the FHA insured type of reverse mortgages because they have closing cost limits that lenders must abide by. Always get two quotes or use the "lenders compete" method to apply for a reverse mortgage. You should also read How Does a Reverse Mortgage Work an article that explains reverse mortgages better.

3) Upkeep, Taxes and Insurance – On traditional mortgages your escrow payments are added to your payment but they are subtracted from your monthly check on a reverse mortgage. Most of the time you will be shown the monthly amount you will receive each month BEFORE the escrows are taken out. This means that you could sign up expecting to get $900 per month and only receive around $700. Make sure you are given the monthly payment LESS your escrow payment. Like most mortgages you will usually be given the option to escrow or not to escrow, however the bank has a vested interest in your home. Meaning if you do not maintain your insurance and taxes as they deem responsible they can call the loan or force an escrow account on you.

When you consider that the bank is basically buying your home you can understand why they would want you to keep their property in good shape. The problem is that this loan is being made to senior citizens. As they age they may become unable to do the necessary maintenance that the bank requires."Good shape" can mean thousands of dollars out of pocket for the homeowner when you consider what a new roof or a fresh coat of paint costs these days. Ask the loan officer what the lenders policy is on maintenance and repair. You may want to take enough money up front to have future repairs taken care of so that your monthly payment stays the same.

Today's financial market is one of the most difficult markets to navigate since the depression. Many questions about where to turn for advice and how to find the best financial products without sacrificing security abound. Reverse mortgages hold promise as a safe and secure tool, but many seniors have questions about what mortgages and the myths surrounding them. Questions include: How do they work? What do you give up if anything? And, how does the retention of home ownership work?

To start, let's cover the basics and history of a reverse mortgage. The term came from early products in the 1980's where the lender made payments to the borrower rather than the borrower making payments to the lender. As a result the product was named the "reverse mortgage". These reverse mortgages often had significant downsides. Once the borrowers passed away the home became the property of the bank who lent the money, and at times terms applied where the borrower could be displaced from the home if they lived too long. Interest rates were typically adjustable with no fixed rate options available. Closing costs were often very high as well. In the 1990's FHA, seeing great potential for the product, got involved and new rules were implemented allowing the borrower to pass on the home equity to their heirs, a guarantee to never be displaced from the home regardless of how long they lived, protection from home value volatility and much more. As a result, today's reverse mortgages are a great option with very few drawbacks.

So how does the reverse mortgage work? A reverse mortgage is similar to a standard mortgage in that it is a loan that is secured by real property, namely the home. The big difference is that there are no mortgage payment requirements on the mortgage. How is this accomplished? The reverse mortgage requires that you have equity in your home and that you are at least 62 years old. As a result a calculation is made to determine the amount of equity that can be lent by looking at the age of the borrower, the interest rate charged and the location of the home. This tells FHA and the lender how much they can safely lend without ever collecting a mortgage payment. As a result the lender can lend with minimal risk, but must wait to make their interest until the homeowner either chooses to move or passes away. Foreclosing is rarely an issue- only in cases where the homeowner does not follow the terms of the loan such as not living in the home, not keeping the condition of the home to reasonable standards or not paying the property taxes and homeowners insurance. This makes a loan that is very appealing to the lender who simply wants to earn interest on a low risk loan.


So where does FHA come into play? FHA had an impact on the reverse mortgage industry when it started insuring the lenders against losses in exchange for certain benefits to the homeowner. This helped reduce interest rates and eliminated most of the big drawbacks of doing a reverse mortgage. If the lender issues an FHA reverse mortgage they are insured against losses should the balance of the mortgage be higher than the value of the home when the homeowner's passes away. Further, the same FHA insurance leaves the borrower the ability to leave the home equity to their heirs- and in most cases there is equity left for the heirs. Today's FHA insured reverse mortgages are referred to as HECM loans, or home equity conversion mortgage.

The benefits of today's reverse mortgages include the ability to live in the home payment free, to receive money from the reverse mortgage to do home improvements, pay off debts or other mortgages, get protection from housing volatility, and get funds that are not taxable (full article). Money received from a reverse mortgage is not taxed because it is not income, it is in fact loan proceeds just as getting cash from a mortgage refinance. The money does not affect Medicare or Social Security income as a result, but can have an impact on Medicaid for those receiving that assistance. Current reverse mortgage have many option types available, including fixed rate options, equity lines where you use money only as needed much like using a credit card- but without any payment requirements, and options for having monthly payments sent to you, or having a lump sum of cash given to you at the loan settlement.

Because of the issues from reverse mortgages of the past, many myths about reverse mortgages abound, and are often spread by financial consultants, radio personalities, close friends and relatives and even mortgage professionals who are not experts on reverse mortgages. We have included a full section on reverse mortgage myths to help clarify these myths and what the real facts are.

The myths include, but are not limited to the following beliefs:
- The bank will own the home when I pass away or move.
- My kids will not inherit the home equity.
- I cannot purchase a home with a reverse mortgage
- Reverse Mortgages are all adjustable rates.
- My kids will have to pay the lender if the mortgage balance is higher than the home value when I pass away.
- I cannot do a reverse mortgage if I currently have a mortgage on my home.
- Closing costs are extremely high
- I will be forced to move from my home if I live too long.

There are many benefits to reverse mortgages, and a few drawbacks. We encourage you to get complete information from a reverse mortgage professional prior to making a decision on getting a reverse mortgage. For more information feel free to visit my site.

With all of the hoopla going around about the reverse mortgage for senior program in the U.S., you would think it is the next great salvation for senior citizens on fixed income. Before we jump to that conclusion, let's investigate some of the pro's and con's of reverse mortgages.

Advantages and Benefits

The very best thing that happens as a result of getting a Reverse Mortgage for Seniors is the improvement that it might make in your monthly cash flow. When you get a reverse mortgage, the current mortgage on your home, if there is one, is completely paid off and thus your obligation to make monthly payments goes away and, instead, you will receive a monthly check from the reverse mortgage lender for asa long as you live in the house! For most seniors, that alone will make a huge improvement to their monthly cash flow budget. Let's say, for example, you have a $500 mortgage payment each month. With the reverse mortgage, that would go away and you could have a $400 check added to your income each month. That net difference of $900 per month can mean a lot to the typical senior citizen's budget!

Since most Reverse Mortgages are insured by the Federal government through HUD, the monthly checks to you are guaranteed even if you lender were to go out of business or if you were to outlive the term of your mortgage.

Other seniors may be getting a reverse mortgage to handle an unexpected financial obligation, like a huge medical bill or nursing home payment. In that case, they would still eliminate their existing mortgage (and payment), but would receive the reverse mortgage proceeds in a lump sum payment or a line of credit instead of monthly payments. When you apply for a reverse mortgage, these disbursement methods are optional to you and you may even mix them to get a small lump sum to cover a bill and take the remainder in the form of monthly payments.

Disadvantages

As the old saying goes, "There are no free lunches!" The downside of a reverse mortgage is that you are living off of the equity in your home. When you move out of your home or pass on, the reverse mortgage will have to be paid off, so this means the home will likely have to be sold. The amount that you plan on leaving to your heirs will necessarily be reduced.

There are significant costs (appraisal fees, loan origination fees, surveys, etc, etc.) associated with obtaining a reverse mortgage. Because of this, a reverse mortgage is not something which should be entered into casually. You should plan on living in the home for at least five years to make the additional reverse mortgage costs worthwhile.

With a reverse mortgage, there is a requirement to purchase Reverse Mortgage insurance from HUD each year. This is to protect you from problems with the lender's liquidity and to cover your payments should you outlive the mortgage.

To protect you from being scammed or 'ripped off' by unscrupulous crooks, the government also requires you to obtain credit counseling before embarking on a reverse mortgage. Usually this takes the form of an AARP counseling session that is free of charge and helps educate you on reverse mortgages as well as helps you determine whether or not a reverse mortgage is right for your particular financial situation.

The Need for Homework

The Reverse Mortgage for Seniors program may be a windfall to you or it could be completely wrong for you to consider. Be sure to do your homework, take your time, and get good advice from an independent source that will not get any money from your decision to get a reverse mortgage. Remember the Rule of the Barbershop - "Don't ask the barber if you need a haircut; you are sure to get clipped!"

Reverse mortgage rates are not different form traditional mortgage rates, and when you are applying for a reverse mortgage you should make every effort to find the lowest reverse mortgage rates you possibly can. While comparison shopping takes time, you can help your own cause by taking advantage of the reverse mortgage calculators available on one of the many reversed mortgage Internet websites.

You will have to pay interest on your reverse mortgage loan regardless of whether you receive your money as a single lump sum, in monthly installments, or as advances on a credit line. In the US, reverse mortgage rates are tied to the US Treasury rate, and like all adjustable mortgages rates will fluctuate as it does.

The Margin Is The Difference

Because of this, any money you save on your reverse mortgage rates will be as a result of the competition among lenders. Their margin--the amount they charge in interest over and above the variable treasury-based reverse mortgage rate, will vary from company to company. Lenders can adjust their rates anywhere from once a month to once a year.

Fixed-Rate Reverse Mortgages

Fixed-rate reverse mortgages are the exception to the rule, although they have become more available in recent months. One limitation on a fixed-rate reverse mortgage is that the borrower must take his or her money in a single payment; monthly installments and lines of credit are not permitted. Fixed reverse mortgage rates, in early 2007, were hovering in the low end of the six percent range, not including the lenders' margins.

Your fixed mortgage rate will have nothing to do with your credit history or your income. Even low-income senior citizens who have paid for their homes are eligible for reverse mortgages; they, in fact, are the individuals for whom reverse mortgages are primarily intended.

You can get a better idea of reverse mortgage rates by researching both online and brick-and-mortar reverse mortgage brokers; many brokers have both websites and offices. Find the best online rate you can, then take it to the reverse mortgage lenders in your area and use it as a negotiating tool if necessary.

You can find a list of legitimate reverse mortgage lenders close to you by doing a search on the National Reverse Mortgage Lenders Association--NRMLA--website, searching by the name of the state in which you live, and then whittling down the results to lenders in your area. All NRMLA lenders are committed to upholding a Code of Conduct, which means they will deal with you fairly in the reverse mortgage process.

If seniors compare the reverse mortgages to the usual income, the tax free feature is really big. The seniors make it wise, that before they sign reverse mortgages they discuss with the counselor, who is an expert to tell, whether the reverse mortgages are tax free in that particular state. In some cases the lump sum payments are not tax free.

1. The Money Comes From The Home Equity.

If you think this, you understand easily the tax free feature. This money is not a typical income but it really comes from the equity, which is owned by the borrower. And the taxes are once paid. However, it is wise to check the rules before signing.

2. The Medicaid.

The tax free feature is just one benefit, which the reverse mortgages offer. But there are also dangers, like a threat to lose the eligibility to Medicaid. The rules vary state by state and the only way to make sure is to ask from the federal counselor. One arrangement is to transfer the money away from your own name into a certain trust, so that you are not anymore the official owner of these funds.


U.S.Government has strict rules concerning these transactions. It is wise to follow these rules. The general idea is, that the payment from the reverse mortgage is not an income, if the money is spent during the same month as received.

3. The Paid Interests Can Be Deducted From The Taxes.

The interests, either fixed or variable ones, will not be paid until the loan will be closed. Then the home will be sold and all the costs will be deducted from the selling price, including the interests. The borrower can deduct the paid interests in the taxation. If the loan running time has been a long one, this is a real benefit.

4. The Home Price Increases Are Part Of The Tax Free Income.

Usually and during the long term, the home prices develop very well meaning, that the homes are good investments. When a retired person will take a reverse mortgage loan against the value of the home, he will actually benefit from this phenomen tax free.

5. Prepare For The Counselor Meeting.

The counselor is the friend of a senior citizen. His only target is to help seniors to solve their financial problems with the reverse loans or in some other way. It is wise to make a question list for the meeting, because these issues include a lot of details, which are important.