New HUD Rules Enhance Reverse Mortgages

By Patrick McEnerney

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Some 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.

The 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.

Reverse 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.

Like 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.

In 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%.

Patrick McEnerney is the executive vice president of EverBank Financial Corp. and the president of BNY Mortgage Company and Priceline Mortgage.




















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