The Evolution of Reverse Mortgages

Quick Synopsis on How Home Mortgages WorkReverse mortgages were designed to enable retired peopleto stay in their homes. These loans differ from standard mortgages in many ways, but the chief difference is that borrowers defer payments on their loans for as long as they continue to live in their residence. Payments are not due until they leave their home.

A Safe Loan for Seniors With Home Equity

A reverse mortgage is available to those who are at least 62 years old, have a good amount of equity in their home, and can meet other specific financial standards. These loans are often used to supplement a person’s retirement funds, allowing them to cover their expenses. This type of loan is regulated by the U.S. Department of Housing and Urban Development and insured by the Federal Housing Administration, a department of HUD. While the government regulates these transactions, it’s private lenders that make the loans. If you’re wondering how much money you can borrow in this type of system, you can find an online reverse mortgage calculator that can help you plan your future.

The Early Years

Nelson Haynes of Deering Savings and Loan in Portland, Maine, in 1961 produced the first reverse mortgage loan. Nellie Young, the widow of Haynes’ football coach, received the loan, and it helped her to remain in her home after losing her husband’s income. The loans continued to develop throughout the 1970s, but the FHA did not secure these early loans.

The 1980s 

The early 1980s saw a push to standardize reverse mortgages as they became more common, and their usefulness to seniors became more apparent. Congress in 1987 passed a bill mandating FHA insurance of reverse mortgages, and in 1988 President Ronald Reagan signed into law the FHA Reverse Mortgage bill. 

Recent Developments

Since the first FHA insured reverse mortgage in 1989, these loans have continued to evolve and grow in popularity. A reverse mortgage stabilization act was signed into law in 2013. The law was seen as necessary after the volatile years of The Great Recession made economic times tough for many Americans. Mortgages of every type, including reverse mortgages, were suffering from higher levels of default. This law affected several changes that protect both lenders and borrowers, including:

  • Limiting the amount that can be withdrawn in the first 12 months.
  • A mandatory financial assessment to gauge if borrowers are able to meet their expenses.
  • Escrow accounts for property taxes, insurance and other expenses associated with housing.

While these loans are not for everyone, they can benefit certain seniors by allowing them to take advantage of the equity they’ve built in their homes.

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