The federal government has tightened the rules for reverse mortgages, making it harder for some seniors to get these types of mortgages and reducing the amount of a home’s value that can be tapped.
Reverse mortgages allow elders who are house-rich but cash-poor to use their housing equity. Homeowners who are at least 62 years old can obtain a loan that doesn’t have to be repaid until the homeowner moves, sells, or dies. The homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the borrower’s age, and current interest rates.
Homeowners can get the money in one of three ways (or in any combination): a lump sum, a line of credit, or a series of regular payments, called a “reverse annuity mortgage.” Seniors sometimes use the loans to pay for home care while they remain in the home.
Almost all such loans are insured by the U.S. government. The government says that in recent years, default rates have been rising, and many seniors are losing their home when they are unable to continue paying for insurance and property taxes. [Read more...]