FHA HECM loans, for those 62+
Something to consider for those sixty-two and older.
Very minimal upfront costs and very low interest. No income requirements. Can be set up to pay out in several ways. No repayment on principle or interest until the house is sold.
Much better deal than the private loans of this kind that I’ve seen previously.
http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm
There’s a link on that site to some helpful advice on the AARP website. www.AARP.org
BTW, I’m not an AARP member but after checking out that website, I’ll be joining up. It’s a lot more helpful than I expected.
Edited 12/3/2008 11:23 am by Hudson Valley Carpenter
Replies
What a great idea! Take the equity out of your house, no income requirements, low interest, no payments! I bet you could make a pile of $$ by packaging a bunch of these and selling the securities to sophisticated investors:-)
Edited 12/3/2008 12:50 pm ET by smslaw
I hadn't thought of it like that but then I'm not a lawyer. ;-)
I'm very unsophisticated when it comes to borrowing money but this plan fits a lot of fixed income, retired people very nicely, just as it was intended to do.
If I choose to put the money to some other use, like building my next home, that's my decision to make, under the terms of this mortgage.
Lots of possibilities, few worries.
I think it is a workable idea for the homeowner, just not sure whether it is good for the economy if all of us of a certain age did it. The reverse payments are presumably based on an appraised value, so if the value of the house plummets, the lender is still paying every month on the previously appraised value, and thus it is getting more and more under water.
The reverse payments are presumably based on an appraised value, so if the value of the house plummets, the lender is still paying every month on the previously appraised value, and thus it is getting more and more under water.
Couple of things: The loan limit is only about 60% of their appraised value, a figure which is at least 20% below current market value. And, the borrower pays an annual premium to FHA which insures the lender against loss if the home doesn't sell for the minimum requirement.
It's really not much of a risk because property values almost always increase at a rate of at least 2% annually.
Another advantage for the government (us) is that older people who take advantage of this program are much less likely to be a burden on government welfare programs or their adult children. They may not leave much to their heirs but that shouldn't matter if the heirs are fully participating in the economy during their most active years.
To me, it's one of the best government programs I've seen...as run by the FHA. The private lender reverse mortgages I've looked at are not nearly so benevolent.
My Dad just completed a reverse morgage. He and Mom are both 82 and have onlly SS as thier retirement income.
When he first approached my sister about it, he was so appologetic that we all felt bad for him. He felt as if he was taking back the only thing that he had to leave his children, but increasing cost of living, taxes and energy had erroded thier income to much. He was let go from his last job just befor he turned 80, and the drop to SS alone was just to much.
For those with a paid off home and in that situation, I see nothing wrong with the reverse morgages. I'm not sure what the income tax impact will be for my parents, probably not much.
Some call it spending your childrens inheritance. I don't see it that way myself. After paying for a home fo 30 years and a few second morgages or equity loans thrown in, it is more like reaping some of the benifits of all those years of labor and struggle.
As long as one of my parents are alive the house will continue to help support them. when the last one passes away any differance between the remaining equity and reversed morgage balance will paid to the estate. For the five remaining children in our family, that inheritance is inconsequental to our parents welfare.
Dave,
I hadn't expected to read such a thoughtful, respectful and compassionate story on this topic. Kudos to you, your siblings and your parents. You're all quite a fine family. I'm grateful to be associated with you through this forum.