Retirees on a fixed or limited income who took out an adjustable rate mortgage (ARM) can easily find themselves at risk of losing their home when their interest rate increases. Many turn to a reverse mortgage to avoid this risk by eliminating their monthly mortgage payment once and for all.

 

Forty percent of those 62 to 75 years old still have a mortgage on their home according to a 2007 Senior Sentiment Survey conducted by Harris Interactive. Of these, about one-third owe $100,000 or more, and 56 percent expect it will take 10 years or more to pay off their mortgage.

 

Often retirees take out these risky types of mortgages because they are sold on the lower "teaser" rate and introductory payment without fully understanding the consequences when the rate adjusts or resets and their payment increases.

 

The number of ARMs due to reset will peak in October, November and December with an estimated $160 billion worth, followed by approximately $680 billion in 2008.

 

These homeowners will see their mortgage payment as much as double either in a single month or in a series of incremental increases spread over time. The primary cause of payment increase is the change between the initial rate and the rate after reset is complete.

 

With limited or no means to generate new income to pay for the increase in their monthly mortgage payment, senior homeowners are forced to sell their home or risk losing their home in foreclosure.

 

Many senior homeowners are now turning to a reverse mortgage to pay off their existing mortgage and eliminate their monthly mortgage payment.

 

The most popular type is the Federal Housing Administration (FHA) Insured Reverse Mortgage. FHA has endorsed over 100,000 reverse mortgages so far this year, which is an increase of 44 percent from the same period last year.

 

A reverse mortgage enables homeowners 62 and older to borrow against their home with no repayment for as long as they live in their home. Unlike a traditional mortgage that is based on a percentage of your home's value, the amount you receive from a reverse mortgage is determined by your age, your home's value, and the interest rate. The older you are the more you receive from the reverse mortgage.

 

The money available from a reverse mortgage must first be used to pay off any existing mortgages on the home. Money left over may be received in a lump sum, a line of credit, monthly payments, or a combination of these options to best meet individual needs.

 

"Since credit and income are not used to qualify for a reverse mortgage, we are able to help our senior customers who have fallen behind on their mortgage payments or are in foreclosure," David Sorin, Reverse Mortgage Specialist, RLCA, said. "It's a great feeling to know that we have been able to keep them in their home and provide them with security and peace of mind."

 

For retirees who have found themselves trapped in a risky mortgage, it's nice to know that they can escape with a reverse mortgage, stay in the comfort of their own home, and have more money each month by not having to make a mortgage payment.

 

To learn more about reverse mortgages, RLCA provides a free reverse mortgage informational package and confidential estimate by calling them toll-free at 800-777-RLCA (800-777-7522) or by visiting their website at www.rlca.com.