Uncle Sam has stepped forward to give reverse mortgages -- the home loans that work backward -- a bigger push.
Homeowners 62 or over can now turn to any lender that makes FHA-insured loans for a reverse mortgage. But don't get discouraged if you can't get one immediately: It will take awhile for lenders to gear up for the program.
The 1990 National Housing Act expanded the FHA's 2,500-loan home equity conversion demonstration program tenfold. Not all lenders were eligible to provide reverse mortgages during the test period. Now, just about any lender who wishes can get approval to do them.
RMs, as they are known in the housing industry, convert equity to cash, including lump-sum or monthly payments that can continue as long as the homeowner resides in the home. When the owner dies or moves, the total amount of the cash payments, plus interest, points and other charges similar to conventional mortgages, must be repaid through the sale of the home.
The FHA offers three basic payment options: tenure, term and line of credit. The first provides monthly payments as long as the borrower occupies the home; the second allows the borrower to select a specific period of payments; and the third sets a maximum amount which the borrower can draw in varying amounts whenever he or she chooses. Borrowers may also combine the options or change them during the loan term.
The size of the monthly payments depends upon the age of the borrower, the value of the house and the interest rate. RMs are available from the private sector, too.
RMs, like annuities, are based on actuarial tables. Thus, they tend to be costliest for those who vacate their homes in the early years of the loan.