The federal government is dramatically expanding a pilot program that enables elderly homeowners to meet living expenses or get extra cash by tapping the equity in their house through a so-called "reverse mortgage."
Effective immediately, the mortgages are being offered by thousands of lenders authorized to make Federal Housing Administration-insured loans. The loans are available to homeowners at least 62 years old, according to the FHA, a unit of the Department of Housing and Urban Development.
"The expansion of this program is an important milestone for older homeowners," Horace Deets, executive director of the American Association of Retired Persons said yesterday. "Reverse mortgages provide a needed source of cash to meet daily living expenses."
In a reverse mortgage, homeowners who either own their property free and clear or have a small remaining loan balance, take out a new mortgage. Instead of taking a lump sum, they either draw on a line of credit or receive monthly payments. If a homeowner dies or moves, his or her mortgage loan is repaid by selling the home, or the heirs can keep the home by paying off the loan balance. If the loan amount exceeds the value of the property, heirs of the homeowner will not be responsible to pay more than the value of the property.
The Federal National Mortgage Association, a congressionally chartered company that finances home buying, has agreed to spend more than $2 billion to purchase at least 25,000 of the mortgages from participating lenders through September 1995.
Those interested in obtaining a reverse mortgage have several options: They may receive a fixed monthly payment for as long as they occupy the home; they may get a fixed monthly payment for a specified term; they may set up a line of credit, or, they may combine a line of credit with one of the two fixed-payment options.