Good Ezines

Towards the end of 2009, many people took an interest in learning more about reverse mortgages. This product can be beneficial to many homeowners, but is sometimes misunderstood and portrayed negatively in the media.

Recently, a credit counseling agency in Arkansas decided to offer free counseling to everyone who is interested in pursuing this type of home financing. This follows the initiative of Money Management International who also made counseling available for free to interested seniors in late 2009.

What is a Reverse Mortgage?

Many people have heard of the federally insured reverse mortgage, but are unfamiliar with exactly what it does and how it works. Put simply, the purpose of reverse mortgages is to allow people who are 62 years of age or older to liquidate some of the equity they have in their home. This product can be used in many ways, but the primary uses are to pay off an existing traditional mortgage or to simply help supplement the homeowner’s income.

Aside from the age requirement, reverse mortgage lenders also require that the home used as collateral be the primary residence of the person applying for the loan. This means that the homeowner must live in the home for at least six months out of the year.

Special Circumstances

Introduced at the end of 2008, the reverse mortgage for purchase program allows people to use these loans to purchase a new home. This gives eligible applicants and opportunity to purchase a new home and obtain a reverse mortgage in the same transaction. Many people use this program in order to downsize or to simply relocate.

Those who already have a reverse mortgage, especially those whose loan is not federally insured, may benefit from refinancing it with another reverse mortgage. Doing so allows homeowners to take advantage of lower interest rates, additional equity, or the more favorable terms offered in today’s market.

Another good reason to refinance an existing reverse mortgage is to take advantage of a fixed interest rate. These have only recently become available on this type of financing and the rates are generally comparable to traditional mortgage rates.

Different Types of the Reverse Mortgage

Many of the negative information which gets passed around about this type of loan does not apply to the federally insured version that is so widely used today. The reverse mortgage market once included a non-federally insured version. This proprietary product was basically a distant cousin of the federally insured reverse mortgage because, while it served the same general purpose, the terms varied greatly and there were little to no consumer safeguards.

Today’s Consumer Safeguards

Today’s federally insured reverse mortgage features a number of consumer safeguards that allow homeowners to feel secure throughout the transaction. Probably the most well known safeguard associated with these loans is that they are non-recourse loans. This means that, as long as the borrower keeps up with homeowners insurance real estate taxes and home repairs, they can never owe more than the fair market sale value of their home, regardless of the actual balance of the loan.

Other safeguards include pre-loan counseling with a third party financial counselor and strict limits on what fees the lender can charge, making federally insured reverse mortgages one of the safest mortgage products of 2010.

As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about reverse mortgages. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!