Home Loan Program for Senior Citizens

There is an interesting Associated Press article in Google News about senior citizens helping to finance their retirement, by using reverse mortgages to borrow against the equity they have built up in their homes.

It is not difficult to realize why schemes of this nature are popular to some senior citizens. It seems that the government is also interested in keeping the scheme going. Apparently they have asked Congress for a $798 million subsidy, to enable them to continue with a plan to insure lenders against losses incurred when a property is sold for less than the total loan amount.

Please Click below to read the full article, an extract from which is included:

Home loan program for seniors needs $798M rescue

"The government said Thursday that the Federal Housing Administration needs the money to support a program that lets homeowners over 62 obtain "reverse mortgages" to borrow against their equity.

A reverse mortgage allows borrowers to convert equity in their homes to cash, without making payments until they die or sell their home. Interest is due at that point.

But with home prices projected to appreciate slowly, if at all, over the next few years, lenders that participate in the government program may not be able to collect the full loan amount from some borrowers. The government, which insures lenders that participate in the program, is on the hook if the house is sold for less than the total loan amount.

Borrowers can draw on about 60 percent of their home's equity. But they are also allowed to receive payments monthly for the rest of their lives, without any cap.

If they live longer than expected and home prices rise slower than expected, that could mean losses for the program."

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1 comment:

ChrisP said...

Reverse mortgage is a useful estate planning tool that banks and financial institutions ought to offer making available to seniors. It's a great security for them to ensure the delivery of their pensions in the amounts they thought forthcoming.