In the year 1910, life expectancy in the United States was only 50 years. By the year 2000, life expectancy had increased to 73 years. The overall effect of this longevity on the population of the United States is significant. Between 1995 and 2025, the number of people who are elderly is projected to double in 21 states. The total U.S. population of those over 65 years of age is projected to grow from 12.8% to 18.5%, according to the census bureau.
While this growth is happening, the economics of America will change. It is already accepted that major changes will have to be made in order for social security to survive the increase in recipients. Most Americans do not have significant retirement plans outside of social security. The good news is that many seniors have equity in their homes which can help with retirement. The current estimate? As of the second quarter of 2007, SeniorJournal.com reports that those over 62 years of age own homes worth $5.09 trillion with equity of $4.28 trillion.
Putting these numbers in perspective, it is no wonder that reverse mortgages have become more popular in the United States. What is a reverse mortgage? It is a mortgage that provides the home owner over 62 years of age with cash and/or a monthly payment over time, with no repayment required until the ownership of the home is transferred either through sale or death.
Basically, the owner of the home can receive a monthly income from their home to help with living expenses without having to pay a mortgage payment. It is obviously why such a mortgage would be popular for those who are retired on limited and fixed incomes and have substantial equity in their homes.
The most popular reverse mortgage program is one administered by the Federal Housing Administration (FHA). The program is called the Home Equity Conversion Mortgage (HECM). Not all lenders are FHA approved and even less lenders actually offer reverse mortgages. Recently there has been a concerted effort by the government to get more lenders FHA approved. In addition, legislation has been approved in Congress to increase FHA mortgage limits for reverse mortgages to a Nationwide limit of $625,000 which means that more homes qualify for the program.
The amount of money that can be obtained under a reverse mortgage will be subject to many variables including…
• The amount of equity in the home. Obviously if the home is worth $300,000 and the current mortgage amount is $290,000, there is not room to access significant equity.
• The amount of the current mortgage. Regardless of the value of the home, if the current mortgage is over the FHA loan limits previously specified in this report, an FHA reverse mortgage will not be possible. It should be noted that some lenders have released “jumbo” reverse mortgage programs to address this situation. These programs may or may not be available based upon market considerations, so we recommend that you speak to your mortgage consultant.
• The age of the homeowner. The closer the homeowner is to the age limit of 62 years of age, the longer is their life expectancy. Therefore, there may be less income available on a monthly basis.
• Interest rates. Higher market rates would also reduce available income and/or up-front cash.
Expect reverse mortgages to become even more popular in the future with the graying of America expected to continue while the economics expected to become tighter for our aging population as social security programs are stressed to the limit and heath costs are skyrocketing. If you are a candidate, talk to your mortgage consultant so they can assess your needs. Even if they don’t carry the program, they may refer you to an expert who might help you determine if this program may help you through your retirement years! Dave Hershman is the top author and a top speaker in the mortgage industry with seven books authored including two texts published by the Mortgage Bankers Association of America.