Financial uncertainty is a way of life for many seniors today. Their dreamed of retirement is often cut short by reality. Seniors have fixed incomes and day to day living expenses are steadily rising. They worry about the future and often ask questions at their financial institution about help to manage their finances. Income boosting alternatives are few. One way to help boost income is a Home Equity Conversion Mortgage (HECM), known as a Reverse Mortgage. Financial employees who are familiar with Reverse Mortgages can help customers by providing them with income boosting alternatives.

A Reverse Mortgage is a special type of loan that gives a homeowner the ability to convert a portion of the equity in their home into cash. The funds aren’t taxable income, and they generally don’t affect the homeowner’s eligibility for Social Security or Medicare programs. An exception is the federal Supplemental Security Income program: beneficiaries must keep their liquid assets under a certain limit to remain eligible. A reverse mortgage customer retains the title to the home and keeps the right to any appreciation in home value when the loan is paid in full. The loan remains in force until the last titleholder leaves the home, sells the property, or passes away. The borrower can’t be compelled to sell or move by the lender. Unlike a traditional second mortgage or home equity loan, there are no required monthly payments. As a result, a reverse mortgage doesn’t put additional pressure on seniors’ already stretched budgets.

The majority of reverse mortgages are Home Equity Conversion Mortgages (HECMs), and are therefore guaranteed by the FHA. In order to help homeowners with properties that exceed FHA lending limits, various proprietary products have been created.

There are a few qualifications for a reverse mortgage. Every title holder must own a home with some equity, and be 62 or older; there aren’t any income or credit filters. Current mortgages or liens must be paid off, but this is often accomplished with the proceeds from the reverse mortgage. The homeowner is required to remain current on insurance and property taxes, but these can also be paid with the reverse mortgage proceeds.

A reverse mortgage borrower has no restrictions on how the monies can be used. Here are common uses for these funds:

- Mortgage loans and credit cards

- Remodeling projects or other home improvements

- General living expenses

- Vacations and travel

- Health care costs or long term care

- Assisting children with financial obligations

- Education

- To fund hobbies

- To defray the rising cost of property taxes

Once the borrower gets his money out of Reverse Mortgage, he is at liberty to use the money for his day to day living. However apart from this spending, the borrowers have the history of using this money towards, payment of debts, mortgages, or credit cards. They can also use this money for home repairs, travel, education for children, taxes, healthcare and more. The reverse mortgage money is in proportion to the age of the borrower, the value of the property, interest rates and FHA lending limits. Elder by age, means more money. The money could be received in lump sum or other modes such as monthly payment or line of credit.

All loan products have origination fees and closing costs. The Reverse Mortgage also has fees and costs, but they can be paid for with the proceeds of the loan. One of the costs is the FHA’s Mortgage Insurance Premium (MIP). The great thing about the Reverse Mortgage is there are no out of pocket costs. One of the other great things is a customer is required to attend mandatory counseling sessions with a trained counselor. These Reverse Mortgage counselors are often certified by the AARP and will ensure the borrower understands the costs of the loan and any other alternatives available. A Reverse Mortgage is a non-recourse consumer loan, meaning the loan payoff can never exceed the value of the home.

Graham McKenzie is the content coordinator for a leading South African leading Homeloans and Bond Origination portal which provides access to ABSA Homeloans.