HUD Rules Enhance Reverse Mortgages
seniors, wishing to boost their income or looking to stay
in their home during retirement, are turning to reverse
mortgages to help preserve their quality of life. A reverse
mortgage is a home loan that allows homeowners age 62 and
older to convert some of the equity in their homes (including
cooperatives and condominiums) into cash while retaining
ownership. Rather than making a payment to lenders each
month, a lender pays the borrower tax-free money that can
be received in a lump sum, through a line of credit, or
through regular monthly payments during the time the borrower
resides in the home. The money received is not paid back
until the borrower no longer lives in the home.
amount that can be borrowed through a reverse mortgage depends
on interest rates, the homeowner’s age, and the home’s
value. Generally, the more valuable the home, the lower
the interest-rate environment, and the older a borrower,
the more a homeowner can borrow. These funds usually do
not affect Social Security or Medicare benefits, and because
they are loan proceeds they are not taxed by the IRS. Funds
obtained from a reverse mortgage may be used for any purpose,
including meeting housing expenses such as taxes, insurance,
fuel, and maintenance costs. Reverse mortgages can also
act as an estate planning tool for wealthy seniors for tax
planning purposes. Some homeowners want the option to gift
money to children tax-efficiently without having to liquidate
their investment portfolio or sell their home.
mortgages are often a good choice for seniors living off
of investment interest income that might not be sufficient
to maintain their lifestyle. A reverse mortgage enables
them to live off of the equity in their home without having
to make repayments.
traditional mortgage customers, seniors holding a reverse
mortgage want the ability to refinance when interest rates
are low or when property values have significantly increased.
The U.S. Department of Housing and Urban Development (HUD)
has issued new rules that allow refinancing provisions in
a new reverse mortgage. With lower rates, increased home
values, and higher HUD loan limits, seniors might be able
to obtain substantially more money than they could have
just several years ago.
the current environment, low interest rates, a high-value
residential real estate market, and an increasing number
of U.S. citizens entering retirement are creating a strong
environment for reverse mortgages, which has led to record
popularity of the products. According to the National Reverse
Mortgage Lenders Association, within the last year the number
of federally insured reverse mortgages made to homeowners
increased by 39%.
McEnerney is the executive vice president of EverBank
Financial Corp. and the president of BNY Mortgage Company
and Priceline Mortgage.