Seniors do not have to “qualify” as they would with a traditional mortgage. In fact, they don’t need to have an income at all to qualify for a reverse mortgage. As long as they maintain the property and pay the property taxes and hazard insurance, a homeowner can never be forced to leave and never lose title to the home. Moreover, a homeowner can never owe more than his or her home is worth. That’s true even in a situation where the value of a home falls below the value of the loan. FHA mortgage insurance that is paid up front as part of closing costs covers that.
Because the money coming out of the home is equity, it’s not taxable. This allows a homeowner to avoid a situation where, for example, he or she would otherwise have to sell appreciated assets, and incur a capital gains tax. How do you settle up? When the homeowner dies or moves out of the house, he or his estate must sell the house or pay off the loan.
Interest on the vast majority of reverse mortgages is accrued on an adjustable-rate basis—although, O’Kane says, the industry has introduced a fixed-rate product that is favored for loans distributed as a lump sum.
Are reverse mortgages a good idea? That depends on a homeowner’s desire to stay in his or her home, and if the proceeds from selling their home would be enough to comfortably purchase or rent a new one. As always, the options should be carefully considered.
| Fiscal Year | Loans |
| FY 2007 | 107,558 |
| FY 2006 | 76,351 |
| FY 2005 | 43,131 |
| FY 2004 | 37,829 |
| FY 2003 | 18,097 |
| FY 2002 | 13,049 |
| FY 2001 | 7,781 |
| FY 2000 | 6,640 |
| FY 1999 | 7,982 |
| FY 1998 | 7,896 |
| FY 1997 | 5,208 |
| FY 1996 | 3,596 |
| FY 1995 | 4,165 |
| FY 1994 | 3,365 |
| FY 1993 | 1,964 |
| FY 1992 | 1,019 |
| FY 1991 | 389 |
| FY 1990 | 157 |
| Total | 346,212 |
Source: U.S. Department of Housing and Urban Development
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