Latest news with #older Americans
CBS News
3 hours ago
- Business
- CBS News
Are reverse mortgages a safe option for seniors? Here's what to know.
The realities of retirement may look a lot different now than you once imagined. While Social Security, pensions and investment withdrawals remain the backbone of retirement funding, issues with rising living costs, longer life expectancies and elevated healthcare expenses have put a lot of weight on the average retiree's finances. That, in turn, has led many older Americans to search for ways to boost their incomes, and some senior homeowners are now turning to their most valuable asset — their homes — for financial support. There are a few ways to do that, but one unique that's option geared directly toward seniors is a reverse mortgage. These specialized loans, which are reserved for those ages 62 and older, allow seniors to convert part of their home equity into cash. And, the appeal is clear: There are no monthly payments to factor in, and this type of borrowing comes with flexible disbursement options and the ability to age in place. Plus, home values are still elevated in many parts of the country, so this may be an opportune time to tap into equity. But like most financial tools, there are also complexities and potential pitfalls that come with taking out a reverse mortgage. So, if you've been trying to determine whether a reverse mortgage would be safe to pursue, there are a few things you should know before deciding. Learn more about the reverse mortgage loan options available to you now. Here's what you need to know about the safety of reverse mortgages in today's unique economic environment: Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration (FHA). This means borrowers have certain protections, such as never owing more than the home's value when it's sold. Lenders also must follow strict guidelines for counseling and disclosures. Still, regulation doesn't eliminate all risks related to this type of borrowing. Misunderstanding the fine print, failing to pay property taxes and insurance while you're still in the home or living outside the home for too long can trigger repayment and even foreclosure. Find out how to get started with the reverse mortgage borrowing process today. Reverse mortgages work best for seniors who plan to stay in their homes for the foreseeable future. If you think you might move within a few years, whether to downsize, relocate or transition to assisted living, the upfront costs and loan fees may outweigh the benefits. And, the safety of the loan decreases if it's used short-term, because you could end up with less equity to put toward your next housing arrangement. A common misconception is that a reverse mortgage eliminates all housing-related expenses. In reality, borrowers remain responsible for property taxes, homeowners insurance, HOA dues (if applicable) and maintenance. Falling behind on these obligations can lead to default. For seniors on fixed incomes, these ongoing costs should be carefully factored into the decision to ensure the loan remains safe and sustainable over time. Unlike traditional mortgages, where your balance decreases as you make payments, a reverse mortgage balance grows over time because interest and fees are added to the loan. While you won't owe the money until you leave the home, the accumulating balance can significantly reduce the amount of equity left for your heirs, or for you if you eventually sell. This makes reverse mortgages less safe for seniors who want to preserve their home as an inheritance. Even with federal regulation, seniors remain a target for scams involving reverse mortgages. Some schemes involve contractors pushing unnecessary home repairs financed by a reverse mortgage, while others exploit seniors through fraudulent loan offers. Working only with HUD-approved and trustworthy lenders, attending mandatory counseling and involving a trusted family member or advisor in the process can add an extra layer of protection. A reverse mortgage can be a safe and effective tool for certain seniors. especially those with significant home equity, a desire to stay put and a need for additional retirement income. But safety isn't guaranteed, so you'll want to make sure you understand the obligations, plan for the long term, and work with reputable lenders if you take this route. If you're considering one, take the time to weigh it against other options, such as downsizing, taking out a home equity loan or tapping investment accounts. A conversation with a financial advisor who understands your broader retirement picture can help ensure your decision supports both your immediate needs and your future security.
CBS News
31-07-2025
- Business
- CBS News
What is the 95% rule on a reverse mortgage (and why does it matter)?
As home prices stay elevated in most markets across the nation, and as more older Americans look for ways to unlock the equity in their homes, reverse mortgages are gaining attention. These loans, designed for homeowners aged 62 and older, let borrowers tap into their home's value without giving up ownership or requiring them to make monthly loan payments. And for seniors on a fixed income, they can offer a much-needed financial cushion. But while reverse mortgages can be a useful tool for those who qualify, these loans also accrue interest over time. And, since there are no monthly payments made by the homeowner, the loan can grow significantly as the interest charges stack up. In some cases, the reverse mortgage loan balance may even exceed the home's market value by the time the loan repayment is due. If family members want to keep the property, though, they'll typically need to settle the loan balance or face a potential sale. That's where the 95% rule comes into play. This lesser-known rule could make the difference for heirs hoping to hold on to a family home. Below, we'll detail how that rule works — and why it matters so much. Find out how a reverse mortgage loan could benefit you today. The 95% rule is a consumer protection built into federally backed reverse mortgages, known as Home Equity Conversion Mortgages (HECMs). These loans are insured by the Federal Housing Administration (FHA), and the rule is part of that insurance framework. Here's how the rule works: If your heirs want to keep your home after you die, or after you and a co-borrower or eligible non-borrowing spouse permanently move out, they are required to pay either the full loan balance or 95% of the home's current appraised value, whichever is less. This rule ensures that your heirs won't have to pay more than the home is worth, even if the loan has grown significantly due to accrued interest. And with no monthly payments required during the life of the loan, reverse mortgage balances can grow quickly, especially if the borrower lives a long time or home values decline. Let's say a borrower takes out a reverse mortgage and eventually owes $320,000 by the time they die. However, the housing market has dipped, and the home is now only worth $280,000. Under the 95% rule, the heirs wouldn't need to repay the full $320,000. Instead, they'd be allowed to keep the home by paying 95% of the appraised value — or $266,000 in this case. The remaining loss would be covered by FHA mortgage insurance. If the home is worth more than the loan balance, however, the heirs must repay the full amount owed, just like with any other mortgage. If they don't want the home, they can sell it, repay the reverse mortgage loan from the sale proceeds and keep any leftover equity. Note, though, that the 95% rule only applies if heirs want to retain the property. If they're not interested in keeping it, they can simply allow the lender to foreclose or turn the home over through a deed-in-lieu of foreclosure. Learn more about your reverse mortgage loan options online now. For senior homeowners, the 95% rule offers a level of reassurance that their loved ones won't be trapped in a difficult or unfair situation. Knowing that heirs can keep the home at a reduced cost may ease concerns about passing on debt or losing a family asset altogether. Here are a few key implications for homeowners and their families: That said, there are still some important caveats. Heirs only have a limited window — usually 30 days — to express intent and up to six months (with possible extensions) to repay the loan or sell the home. And to take advantage of the 95% rule, they will need to secure financing or have the cash available to buy the property. The 95% rule on reverse mortgages might not be widely known, but it plays a crucial role in protecting heirs and easing the transition of a home after a borrower's death or departure. By capping the cost at 95% of the appraised value, this rule ensures that loved ones have a fair shot at keeping the home, even if the loan balance has grown significantly over time. And, for senior homeowners considering a reverse mortgage, the rule offers a valuable safeguard and an important talking point when discussing long-term plans with family. Still, it's just one piece of the puzzle. Before taking out a reverse mortgage, it's important to make sure the loan — and its future implications — align with your goals.
