Reverse Mortgages are one of the many types of home mortgage loans. But where do they come from? Or one might ask who had the idea to come up with them?
Due to their slightly complicated background, we are going to dive deeper into the history of reverse mortgages to help give you a deeper understanding of why they were originally created. But first, let’s do some review on what a reverse mortgage is.
What is a Reverse Mortgage?
A reverse mortgage, or home equity conversion mortgage (HECM), is a type of home mortgage that does not require monthly mortgage fees. A reverse mortgage loan allows homeowners to access the equity that their primary residence has built up over time. Once someone becomes a borrower, they don’t have to pay off the loan until they move out, sell the home, or pass away.
Reverse mortgages are very beneficial because they smooth out your income by removing monthly mortgage payments–leaving reverse mortgage borrowers responsible for only paying property taxes, homeowners insurance, and any necessary maintenance servicing fees. Reverse mortgages protect borrowers from falling victim to crippling mortgage payments as they live through their senior years.
Reverse mortgages are perfect for people who would like to stay in their own homes during their older years and feel secure with the knowledge that their financial needs are managed.
The Reverse Mortgage’s History
In 1961, the very first reverse mortgage began with Nelson Haynes of Deering Savings & Loan in Portland, Maine. Haynes designed a new type of loan for the widowed wife of his high school football coach to ensure that she could stay in her home for the rest of her life. The widow’s situation was not an isolated one. Many people shared a similar situation, which caused this type of loan to gain popularity.
With reverse mortgages continuing to gain traction across the United States, it was time they become federally recognized.
During the first congressional hearing concerning reverse mortgages in 1983, the Senate approved a proposal by Senator John Heinz to insure reverse mortgages by the Federal Housing Administration (FHA). Continuing on his idea to have reverse mortgages recognized on a national level, Heinz also suggested that the idea of home equity conversion should be further explored.
In 1987 under the US Department of Housing and Urban Development (HUD), the Housing and Community Development Act saw the federal government systemize reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. This HECM program became the basis for reverse mortgages.
Between 1987 and 2005, the HUD was making strides to further establish the reverse mortgage and work on areas that needed strengthening. In 1994, Congress began requiring lenders to disclose to borrowers the total annual loan costs at the start of the application process. This allowed borrowers the opportunity to compare lender prices and shop around. Finally, in 2005 the first HECM refinances were made.
In 2006, the national loan limit was established, standing at $417,000. From this point further, Congress continued to raise the HECM lending limit as the economy continued to rise. The HUD also releases new HECM policies that make the product safer, stronger, and less risky for the borrower.
As of January 2022, the loan limit for HECM reverse mortgage loans is $970,800. This is a 133% increase from the original national loan limit of $417,000 established in 2006. With the price of homes increasing, the loan limit also followed suit. Reverse mortgages continue to evolve and grow to better reflect the economy and the needs of borrowers.
How to begin a Reverse Mortgage
If you think a reverse mortgage is meant for you, starting your journey you will want to begin with knowing:
- Your home’s value
- Your home’s interest rates
- The age of the youngest eligible spouse
- Your existing mortgage balance
With these, you can receive a free quote on how much your home equity allows you to borrow. With this knowledge, you can begin to game plan how your reverse mortgage will supplement your mortgage fees and how you can begin focusing your finances elsewhere.
Do I Qualify for a Reverse Mortgage?
Knowing whether or not you qualify for a reverse mortgage is as important as knowing where to start.
To know if you qualify for a reverse mortgage, ask yourself the following questions:
- 1. Am I at least 62 years of age?
- 2. Do I own my property outright, or is the mortgage small enough to be paid off in the reverse mortgage process?
- 3. Do I occupy the property as my primary residence?
- 4. Am I delinquent on any Federal debt?
- 5. Is my home considered a single-family home that meets the Federal Housing Administration requirements?
If you answered “Yes” to all these questions, then you may be able to qualify for a HECM Reverse Mortgage!
The Benefits of a Reverse Mortgage
There are numerous benefits of a reverse mortgage.
Here are a few of our favorites:
- 1. A reverse mortgage can give you more financial freedom and help you utilize that to improve your quality of life
- 2. You will avoid paying monthly mortgage payments until the loan ends.
- 3. You are allowed to stay in your own home and keep your title.
- 4. Proceeds from reverse mortgages are tax-free and not considered income.
- 5. Income is not a factor in loan qualification.
It’s no wonder why reverse mortgages are so popular!
Idaho Reverse Mortgage
If you are looking to begin a reverse mortgage, it is important to choose a trusted reverse mortgage program to guide you through this process. Idaho Reverse Mortgages specializes in both a standard reverse mortgage and jumbo reverse mortgage.
It is our duty to help you understand your loan options given your unique situation. If your home’s value lies above the HECM loan limit, your home might qualify for a Jumbo Reverse Mortgage. And lucky for you, we are experts in both!
Do not hesitate to reach out to Idaho Reverse Mortgages to start the process today!