Homeowners 62 and older who have paid off their mortgages or
have only small mortgage balances remaining are eligible to participate in HUD's
reverse mortgage program. The program allows homeowners to borrow against the
equity in their homes.
Homeowners can receive payments in a lump sum, on a monthly
basis (for a fixed term or for as long as they live in the home), or on an
occasional basis as a line of credit. Homeowners whose circumstances change can
restructure their payment options.
Unlike ordinary home equity loans, a HUD reverse mortgage
does not require repayment as long as the borrower lives in the home. Mortage
companies recover their principal, plus interest, when the home is sold. The
remaining value of the home goes to the homeowner or to his or her survivors. If
the sales proceeds are insufficient to pay the amount owed, HUD will pay the
company the amount of the shortfall. The Federal Housing Administration, which
is part of HUD, collects an insurance premium from all borrowers to provide this
coverage.
The size of reverse mortgage loans is determined by the
borrower's age, the interest rate, and the home's value. The older a borrower,
the larger the percentage of the home's value that can be borrowed.
For example, based on a loan at an interest rate of 9
percent, a 65-year-old could borrow up to 26 percent of the home's value, a
75-year-old could borrow up to 39 percent of the home's value, and an
85-year-old could borrow up to 56 percent of the home's value.
There are no asset or income limitations on borrowers
receiving HUD's reverse mortgages.
There are also no limits on the value of homes qualifying
for a HUD reverse mortgage. However, the amount that may be borrowed is capped
by the maximum FHA mortgage limit for the area, which varies from $81,548 to
$160,950, depending on local housing costs. As a result, owners of higher-priced
homes can't borrow any more than owners of homes valued at the FHA limit.
HUD's reverse mortgage program collects funds from insurance
premiums charged to borrowers. Senior citizens are charged 2 percent of the
home's value as an up-front payment plus one-half percent on the loan balance
each year. These amounts are usually paid by the mortgage company and charged to
the borrower's principal balance.
FHA's reverse mortgage insurance makes HUD's program less
expensive to borrowers than the smaller reverse mortgage programs run by private
companies without FHA insurance.
Content supplied by mortgage101.com
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