Many senior adults are finding it hard to live on their fixed retirement incomes and are looking for ways to supplement those incomes. For some, the largest asset they own is their home, but they do not want to sell their home and move. For these individuals, there is an option called Home Equity Conversion (HEC).
One type of home equity conversion is a reverse mortgage. The equity or cash value of the house is used to provide income to repay the loan. All reverse mortgage options are not the same. They have different eligibility requirements, income amounts, timing of payments, interest rates, and/or initial costs. Homeowners should compare the different options, keeping in mind their goals and needs.
You could be eligible if you own your own home, use the home as your principal residence, and are at least 62 years of age. You must also have adequate equity in the home.
A lender looks at the equity in the home plus any expected appreciation or depreciation in the value of the home to calculate a base amount. The costs associated with any reverse mortgage loan (application fees, interest rates, closing costs, initial charges, sales commissions, and homeowner's insurance) also must be considered. All reverse mortgages currently available in Virginia require homeowner's insurance.
The lender and the homeowner must work together to determine the type of payment, the payment amount, and the time period. This is determined not only by the calculations of the base amount by the lender, but also by keeping your goals and financial needs in mind.
A wide variety of loan options are available depending upon your age, the amount of equity available, the time period of the loan, and the way payments are disbursed.
For example, Mary Jones, a 75-year-old widow whose home is her principal residence, is looking at a ten-year reverse mortgage that will provide her with additional monthly income of approximately $450. At the end of the ten years the monthly income payment will stop. But because her loan is through an insured lender (loans offered by HUD approved lenders have government guarantees), the loan will not have to be repaid until she sells the home, moves, or dies.
|Home Equity Conversion Checklist|
|These questions can to help you determine if you are eligible for a home equity conversion (HEC).|
|1. Are you 62 years of age or older?||_____||_____|
|2. Is your mortgage paid off in full or nearly so?||_____||_____|
|3. Do you use your home as your primary residence?||_____||_____|
|If you have answered yes to questions 1 through 3, you might want to consult with an HEC lender for specific information.|
|The following questions will help to determine if you are eligible for a Housing and Urban Development (HUD) home equity conversion. A HUD-HEC is similar to other HECs but with additional requirements for the property and residents.|
|4. Is your home a single-family dwelling?||_____||_____|
|5. Will your home probably meet HUD minimum property standards?||_____||_____|
|6. Is your family income less than 80% of area median?||_____||_____|
|If you have answered yes to questions 1 through 6; you might want to consult with a HUD-HEC lender for specific information.|
FHA - HECM (Home Equity Conversion Mortgage)
Guaranteed by FHA/HUD
Flexible Income Payment Option
Growing Line of Credit
Maximum Lending Limit - $ 280,749
Flexible Income Payment Options
Growing Line of Credit
Higher Equity Release Options
No Maximum Lending Limit
HomeKeeper by Fannie Mae
Guaranteed by Fannie Mae
Line of Credit Options
Maximum Lending Limit - $ 322,700
Zero Point Cash Account
Closing Costs Limited
Minimum Draw at Closing Required
Interest Rate Cap
No Maximum Lending Limit
Mortgage Capital Investors
6571 Edsall Road
Springfield, VA 22151
East West Mortgage - HECM, HK, CA
4321 Northview Drive
Bowie, MD 20716
(866) 9REVERSE [(866) 973-8377]
(301) 809-1568, ext. 225
Financial Freedom Senior Funding Corp.
(Subsidiary of Lehman Brothers, FSB) - HECM, HK, CA
Reverse Mortgages of the Mid-Atlantic - HECM, HK, CA
564 Lynnhaven Parkway
Virginia Beach, VA 23452
Fidelity & Trust Mortgage, Inc. - HECM, HK, CA
7229 Hanover Parkway Suite C
Greenbelt MD 20770
People's Choice Mortgage - HECM, HK, CA
Wells Fargo Home Mortgage - HECM, HK
Inclusion on this list of lenders does not imply endorsement by Virginia Cooperative Extension, nor does omission from this list imply a lack of endorsement.
|Home Equity Conversion Comparison Worksheet|
|Features||Name of Lender|
|Lump Sum Option|
|Line of Credit Option|
|Monthly Benefit Option|
|APR (Annual Percentage Rate)|
|Other Initial Charges|
AARP Home Equity Information Center
601 E. Street NW
Washington D.C. 20004
Reverse Mortgage Money
American Credit Counselors
Tudor Square, Ste. 10
211 Roanoke St.
Christiansburg, VA 24073
National Center for Home Equity Conversion
360 Robert Street North Suite 403
St. Paul, MN 55101
1173 W Main St
Abingdon, VA 24210-2428
Original authors: Patricia Gorman, graduate assistant, and Kathleen Parrott, former Extension housing specialist, Virginia Tech
Virginia Cooperative Extension materials are available for public use, reprint, or citation without further permission, provided the use includes credit to the author and to Virginia Cooperative Extension, Virginia Tech, and Virginia State University.
Issued in furtherance of Cooperative Extension work, Virginia Polytechnic Institute and State University, Virginia State University, and the U.S. Department of Agriculture cooperating. Edwin J. Jones, Director, Virginia Cooperative Extension, Virginia Tech, Blacksburg; M. Ray McKinnie, Administrator, 1890 Extension Program, Virginia State University, Petersburg.
May 1, 2009