Reverse Mortgages: Background and Issues Page: 4 of 28
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Reverse Mortgages:
Background and Issues
Introduction
According to the American Housing Survey (AHS), nearly 25 million American
homeowners have no mortgage debt, and more than 12.5 million of them are elderly
(age 65 or older).1 For many of the elderly homeowners, the equity in their homes
represents their largest asset. The AHS finds that the median value of these
unmortgaged homes is $127,959.
Many elderly homeowners find that while inflation has increased the value of
their homes, it has also eroded the purchasing power of their fixed incomes. They
find it increasingly difficult to maintain their homes while also paying for needed
food, medical, and other expenses. Because of their low incomes, many may be
unable to qualify for loans to pay for unexpected expenses. "House rich and cash
poor" is the phrase often used to describe their dilemma. One option is to sell the
home and move to rental housing or purchase a lower-cost home. For a variety of
reasons, however, many older Americans prefer to remain in the homes in which they
may have spent most of their working years.
Since the 1970s, academics and housing advocates have sought to create
mortgage instruments that would enable elderly homeowners to obtain loans to
convert their equity into income, while providing that no repayments would be due
for a specified period or, ideally, for the lifetime of the borrower. These instruments
have been referred to as reverse mortgages, reverse annuity mortgages, and home
equity conversion loans.
Generally, when a borrower obtains a mortgage, a lender advances a lump-sum
payment to or on behalf of the borrower, and the borrower becomes committed to
making a stream of monthly payments to repay the loan. With the reverse mortgage,
the lender becomes committed to making a stream of payments to the borrower, and
such payments are repaid to the lender in a lump sum at some future date. Thus,
reverse mortgages are the opposite of traditional mortgages in that the borrower
receives payments from the lender instead of making such payments to the lender.
Reverse mortgages are designed to enable elderly homeowners to remain in their
homes while using the equity in their homes as a form of income.
American Housing Survey for the United States:2005, Current Housing Reports. H150/05.
U.S. Department of Housing and Urban Development and U.S. Census Bureau. August
2006, p. 156.
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Reverse Mortgages: Background and Issues, report, January 26, 2007; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc805492/m1/4/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.