A reverse annuity mortgage has several different names. Industry insiders call them reverse mortgages or home conversion loans. The government and finance companies created them to assist retirees who find themselves in a condition of being rich in assets but poor in cash. There has become a greater need for this type of product as more and more individuals find themselves increasingly retiring with only the significant asset of their house.
A greater number of individuals now only receive social security payments after they retire. This amounts to less than $20,000 for an individual or perhaps around $30,000 for married couples. It means that there usually will be a massive need for more money coming in during the retirement years. This gave rise to the concept of the reverse annuity mortgage.
This specially tailored reverse annuity mortgage allows homeowners to sell part or all of their house now but to remain in it until they die. It provides money that retirees are able to utilize for a variety of needs. This could be to supplement the monthly income. It might also be used for medical expenses, long term care, home maintenance, or even the overseas trip of a lifetime.
The way these reverse mortgages work is fairly straight forward. Finance companies provide a set dollar amount of money. Homeowners can receive monthly income as with the reverse annuity mortgage. They might also get a lump sum amount from the option for home equity conversion. The borrowers do repay the loan principle along with interest. What makes these vehicles unique is that there is no physical repaying of the funds. The debt accrues to be paid back after the owners sell the house. This is usually after the retirees have passed away or gone into a permanent care facility.
When retirees choose the annuity option, they utilize the funds from the house to purchase a lump sum annuity. This pays out every month so that they can count on monthly payments that continue until they die. It provides tremendous security for struggling retirees who have only their house to help out their situations.
Scams are a significant and real concern with a reverse annuity mortgage. Retirees are often taken advantage of and cheated. There are companies that charge even thousands of dollars in exchange for information which the HUD provides for free. They disguise these fees under their estate planning service contracts. Fees can amount to from six to ten percent of the full amount the retirees borrow. This can cost even tens of thousands of dollars depending on the reverse mortgage amount. HUD has advised reverse mortgage lenders to not work with such companies.
Other companies are using reverse mortgages as a way for retirees to pay for a significant purchase such as insurance or annuities which they sell. They often hide unethical and exorbitant fees or unfair terms in their contracts. Some lenders will include share appreciation or share equity terms. This can ravage the retirees’ equity position and not give them any benefits in return.
Individuals are able to protect themselves from such scams in the reverse mortgage field. The simplest and most effective means is to work with a reverse annuity mortgage counselor that the HUD has approved. They will evaluate the retiree’s scenario as well as the contracts on a reverse mortgage. These specialists will find any possible problems and make it clear what needs to be changed or avoided.