According to the most recent U.S. Census in 2010, an estimated 1.08 million people—or roughly 13.5 percent—of New Jersey’s population is over the age of 65. Older New Jerseyans probably live in longtime neighborhoods or in senior-only 55+ developments. Some of them may be in the market for a reverse mortgage, a type of loan structure available to senior homeowners 62 years of age and older.
A reverse mortgage is a special type of home loan that lets the borrower convert a portion of the equity in their home into cash, according to the federal Department of Housing and Urban Development (HUD), which administers the great majority of the reverse mortgages written in the U.S.
Although the interest keeps building up, the reverse mortgage doesn’t come due or payable until the borrower passes away or moves out of the home permanently—meaning that he or she hasn’t lived in the home for a year or more, according to Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association (NRMLA). The repayment amount can’t exceed the sales value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower’s heirs or estate.
“There are liabilities taken on by lenders as part of their responsibilities as FHA lenders,” says Bell, but “the FHA insurance is designed to help mitigate those liabilities.”
The first reverse mortgage was given in 1961, but that was an isolated case given by a local savings and loan in Portland, Maine, to the widow of the lender’s high school football coach. The concept became more popular in the 1980s, and in 1987, under the influence of the AARP, Congress created the Home Equity Conversion Mortgage, or reverse mortgage program. In 1989, HUD selected 50 lenders to make the first FHA-insured reverse mortgages. After years of popularity, however, the current financial situation has seemingly made some lenders think twice about offering reverse mortgages.