A growing number of senior US homeowners are turning to the reverse mortgage to allow them to pay for standard daily living costs and medical needs. An explosion in the number of reverse mortgages may allow Baby Boomers to pay for their futures.
The numbers seem shocking when given a first thought. According to the Department of Housing and Urban Development in the US, the number of reverse mortgages used in 2007 hit an all time high of well over 107,500. This is up from the 1990's when just a few hundred, if that, were used.
The reverse mortgage allows homeowners to access equity in their home that will pay out consistently for them over the course of their remaining lifetime. At the time of death, heirs must repay the mortgage to keep the property or it is sold. Today, it is estimated that some $4 trillion worth of equity is available to such seniors that own their homes free and clear.
The most common of reverse mortgages is the HECM or Home Equity Conversion Mortgage. These are federally insured loans are available to most that are over the age of 62. These loans allow equity to be used as a line of credit, as a monthly income or as a lump sum. Interest rates are added to borrowed funds, making the outstanding balance increase over time.
Many believe that for the Baby Boomer generation, the reverse mortgage may act as a saving grace especially for those with increasing medical costs and no medical insurance, or those with little to no savings due to the lack of pensions available.
Funds can be used for any need required including medical costs, day to day living costs and for entertainment, property investment or other such desires. Insurance limits on these loans are based on geographic area, with a range from $200,160 to $362,790.
