Reverse mortgages have been around since 1961. The first person to receive a reverse mortgage was Nellie Young through the Deering Savings and Loan Bank of Maine. At that time, the reverse mortgage was issued through the bank itself and any bank could choose whether or not they would do a reverse mortgage. Not a lot of people took advantage of reverse mortgages because there was nothing to guarantee that a bank wouldn’t take advantage of them. Banks also found some risk in doing reverse mortgages because there was nothing to guarantee that the borrowers fully understood what they were doing when taking out this reverse mortgage. The whole system still had a few issues to be worked out.
In 1988 the federal government stepped in and worked out a new law with the AARP to help increase the use of reverse mortgages under government supervision. The law was the Federal Housing Authority Insurance Program where 50 different lenders were chosen across the country to participate in giving out reverse mortgages. It wasn’t until 1989 that the first government supervised reverse mortgage was given out.
As people learned about reverse mortgages, they became more popular. In 1998 the pilot program became an official program that all lenders could participate in. The reason reverse mortgages became so popular is because they allow senior citizens who own a home and have retired to access the equity of their home without any real risks to them. When they are no longer living in the home for whatever reason, the house is then either sold or the family can choose to refinance the mortgage. If the house doesn’t sell for the amount that the reverse mortgage was for, there is no obligation to pay back the difference.
The way that an elder receives their money is completely up to them. They can get a line of credit where they can use the money from the bank as needed. This method will give them the most amount of money for their home. They can also take out the reverse mortgage as a lump sum, although the interest fees they will have to pay on it will be higher than the other options. The most common method of receiving payment from a reverse mortgage is to get a monthly payment. This payment will continue for as long as the person is alive, no matter how long they live or what the amount of the loan was.
There are a few stipulations to receiving a reverse mortgage, although for most people they aren’t a problem. The minimum age a person must be to get a reverse mortgage on their home is 62. They also must not have a current mortgage on the house or they will have to use a portion of their reverse mortgage to pay off the first mortgage. They will also have to go to financial counseling to assure the lender that they are fully aware of what the terms of the loan are and that they can meet their financial responsibility.
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