October 20, 2000 |
2000-R-0974 | |
REVERSE ANNUITY MORTGAGES | ||
By: Helga Niesz, Principal Analyst | ||
You asked (1) for an explanation of reverse annuity mortgages, (2) if any banks or lending institutions in Connecticut are offering them, and (3) for the names of Connecticut lenders, particularly those in Fairfield County.
SUMMARY
A reverse annuity mortgage (RAM) is a loan aimed at senior citizens who have paid off their houses but cannot afford to stay there or need extra money for such things as home repair, long-term care, or other purposes. The loans are usually paid out to the borrower monthly, instead of in a lump sum, and repaid when the borrower sells the home, moves out, or dies.
The Connecticut Housing Finance Authority (CHFA) has a program that makes such loans to seniors who are at least age 70 and have long-term care needs and annual incomes up to $52,000.
We have attached a list of private lenders who make such loans in Connecticut. Some of them participate in federal programs to insure such loans and sell them on the secondary mortgage market.
REVERSE ANNUITY MORTGAGES
A RAM, also sometimes called a reverse mortgage or home equity conversion loan, can help certain senior citizens use their home equity to stay in their homes if their income is less than their monthly needs. It can also be useful to people who need to pay for long-term care but who do not qualify for state assistance programs.
The reverse mortgage can take a number of forms. In a normal mortgage loan, the borrower receives a lump sum to buy a house or make home improvements and begins to repay the loan immediately. By contrast, in a reverse mortgage the homeowner usually receives monthly payments from the loan proceeds and repayment is deferred until the homeowner moves out, dies, or sells the home. With some of these loans, the borrower can choose a lump sum, regular monthly payments (sometimes with a small initial lump sum), or a line of credit to use as needed. Monthly payments can continue for a set number of years or until the homeowner dies, moves out, or sells the home.
CHFA RAM PROGRAM
The CHFA Reverse Annuity Mortgage program makes loans to lower- and moderate-income senior homeowners who have long-term care needs. "Long-term care" includes a wide range of medical and supportive services for people who cannot function on their own because of a chronic illness or condition and who are expected to need this care for at least six months. Eligible costs include those associated with hospitals, nursing homes, residential care homes, in-home care, adult day care, durable medical equipment, medically needed home alterations, long-term care insurance premiums, and uninsured recurring or catastrophic medical and prescription drug expenses. The Department of Social Services (DSS) accepts applications for the program.
The borrower can choose to receive monthly payments for five or 10 years. After that, monthly payments stop, but interest continues to accrue. The loan is not repaid until the owner dies or the house is sold. To be eligible, borrowers must be at least 70 years old, have annual household income of $52,000 or less, and have long-term care needs. If the borrowers are a married couple, at least one spouse must have long-term care needs. The maximum loan amount is the lesser of $207,000 or 70% of the home's appraised value.
Borrowers who do not want monthly payments can choose to receive a one-time lump sum payment of up to $5,000 to be used for any purpose. If the lump sum is to be used for medical or supportive services it can be as high as $25,000. Otherwise, the loan proceeds do not have to be spent only on long-term care expenses.
More information about the CHFA RAM and application forms can be obtained from the DSS Elderly Services Division at (860) 424-5283 or 1-800-443-9946. The division screens applications and forwards them to CHFA.
PRIVATE RAM LOANS AND FEDERAL PROGRAMS
Attached is a list of private lenders that make RAM mortgage loans in Connecticut, provided to us by DSS. These lenders make loans anywhere in Connecticut. A few have offices in Fairfield County. Their terms and conditions vary, but a number of them are involved with the federal Department of Housing and Urban Development (HUD) reverse mortgage programs. The HUD reverse mortgages are made by private lenders to people age 62 or older and are insured by the Federal Housing Administration (FHA), which is part of HUD. There are no asset or income limits and no limit on the value of the home, but the maximum loan amount is the same as for other FHA-insured loans ($81,548 to $160,950 depending on the home's geographic location). More details are available from HUD at 1-888-466-3487, from Fannie Mae, which purchases reverse mortgages on the secondary mortgage market (1-800-7FANNIE), and at the following websites:
http://www.hud.gov/rmtopten.html
An evaluation of the federal program is available at:
The American Association of Retired Persons, the National Center for Home Equity Conversion, and the National Reverse Mortgage Lenders' Association also provide RAM information at the following websites:
http://www.aarp.org/hecc/fcshtnet.html
http://www.reverse.org/INFO.NCHEC.HTM
http://www.reverse.org/faqs.htm
HN:ts