Texas is the second most populous state in America with a population of over 25 million. Around 3.8 million Texans are 60 or older, a number that is expected to grow to over 12 million by 2050.
Because many of these Texas seniors are homeowners with significant home equity built up, Texas is one of the largest reverse mortgage markets in the United States. Under the Texas Constitution (as approved by the voters) a reverse mortgage may only be made to a home owner age 62 or older.
What is a Reverse Mortgage?
A reverse mortgage is a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. "unlike traditional mortgages, which decline as you pay down the loan, reverse mortgages rise over time as interest on the loan accrues".
No one plans to go broke during retirement. Most seniors fill up their retirement's gas tank and get ready to cruise. But with today's longer life spans, seniors often need more cash to help them motor through their golden years.
No one can predict the financial roadblocks that may arise, such as the need for expensive prescriptions or medical procedures. Just one major setback could drain more of those hard-earned retirement dollars than anyone expects. Fortunately, Texas seniors have some options to keep the financial engine running during retirement. One option is a Texas reverse mortgage.
How a Reverse Mortgage Works
A reverse mortgage loan allows seniors to liquidate the equity in their homes for cash without selling the home or incurring a monthly loan payment. The money can be used to supplement an income, make a purchase, or cover upcoming expenses.
The borrower typically chooses
from three payment options:
1) one lump sum in cash,
2) equal monthly payments for as long as both borrowers live in the home, or
3) equal monthly payments over time. Repayment is not required until both borrowers move, sell their home, or are deceased. At that time, the lender may exercise its security interest and foreclose on the property or the owner or the heirs of the owner may pay the lien off. Naturally, heirs may object to a reverse mortgage for that reason.
Like any other loan, a reverse mortgage accrues interest charges, beginning when the first payment is made to the borrower. Usually a reverse mortgage is an Adjustable Rate Mortgage (ARM), with interest compounded monthly.
Senior's may consider hiring an attorney to help them review reverse mortgage documents. Seniors can also contact the Office of the Attorney General at (800) 252-8011 or visit their website at www.oag.state.tx.us to find out about legal clinics.
Reverse Mortgage Eligibility
Reverse Mortgage Eligibility
There are 3 major qualifications for reverse mortgages, they are:
Age - All borrowers must be 62 or older.
Occupancy - The subject property/home must be the primary residence.
Property Type - It must be a single family residence, 1-4 unit multi-family property, approved planned unit development, or condo.
To be eligible for a reverse mortgage, a borrower must be 62 or older, own the home outright (or have a low loan balance), and have no other liens against the home. A borrower continues to be responsible for property taxes, homeowners insurance, and upkeep of the home; failure to do so can result in foreclosure.
Borrowers are also required to attend financial counseling before closing, a crucial step that helps a borrower avoid paperwork potholes and learn more about the loan. You can view a list of local credit counseling agencies here. Using the equity a homeowner has built up over the years can help a borrower detour away from public assistance programs. Seniors who rely on public assistance need to research the impact reverse mortgage payout's may have on their benefits.
What About Your Heirs?
A borrower should discuss the reverse mortgage loan option with family or other heirs before closing on the loan. An heir will need to be prepared to pay off the loan balance if the heir would like to keep the home. Open communication, along with strong monthly financial planning, is necessary to keep family affairs running smoothly. One possible financial plan is for the family or heirs to obtain and maintain life insurance on the borrower, with proceeds designated for paying off the loan balance.
Consider Your Alternatives
Because these loans can be complicated and expensive, a reverse mortgage is not an answer to every senior's situation. Consider other strategies before committing to a reverse mortgage:
Elder Options of Texas
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