Homemade Money: A Consumer's Guide to Reverse Mortgages
Session 5 - Single-Purpose Reverse Mortgages
Course Section
Single-purpose reverse mortgages may be used only in a single, specific way. Some can be used only to make home repairs or improvements. Others must be used to pay property taxes or special assessments. These specialized loan programs are not available in all areas, and many are not open to homeowners with higher incomes. But these loans are often the least expensive reverse mortgages you will find.
Most often, these loans are offered by state and local governments. Due to their restrictions, they usually end up providing less total cash than do other types of reverse mortgages. The loan payments are generally matched to their single purposes. For example, a single lump-sum payment is advanced for home repairs, while annual advances are used to cover property tax payments.
Home made money–for home improvements
Many local and some state government agencies offer deferred payment loans (DPLs) for repairing or improving your home. This type of public sector reverse mortgage provides a one-time, lump-sum advance. As with other kinds of reverse mortgages, no repayment is required for as long as you live in your home.
The best thing about DPLs is their very low cost. Generally they have no origination fee, no insurance premium, minimal (if any) closing costs, and very low (or no) interest. If interest is charged, it is often done on a "fixed" basis, meaning that the rate never changes. Many DPL programs also charge "simple" rather than "compound" interest. This means that interest is not charged on any of the interest that has been previously added to the loan balance. Some DPL programs even forgive part or all of the loan if you live in your home for a certain period of time after closing on the loan. In other words, you may end up paying nothing back—ever. If you can find and qualify for a "forgivable" DPL, you would most likely have more equity left at the end of the loan than you had at the beginning. In any case, a DPL is one of the best bargains you'll find.
Rules and regulations
DPLs aren't available everywhere, and they can be difficult to find. Contact your city or county housing department, area agency or county office on aging, or the nearest community action or community development agency. (Note: Agencies that do not offer DPLs may offer other low-cost home repair loans with easily affordable monthly payments.) Eligibility criteria vary from program to program. Most are limited to homeowners with low or moderate incomes. Many place a limit on a home's value or lend only in defined areas. Some have a minimum borrower age or a disability requirement.
There are also restrictions on the types of repairs or improvements for which DPLs can be used. You may be limited to projects that replace or repair basic items such as your roof, wiring, heating, plumbing, floors, stairs or porches. Many programs also permit work that improves the accessibility or energy efficiency of your home. Such modifications may include the installation of ramps, rails, grab bars, storm windows, insulation, or weather-stripping.
Finally, you may be able to combine a DPL with a federally insured HECM loan. To do this, the DPL lender must agree to be repaid after the HECM is repaid.
Property tax deferrals
Some state and local government agencies also offer property tax deferral (PTD) loans. This type of public sector reverse mortgage provides annual loan advances that can be used only to pay your property taxes. No repayment is required for as long as you live in your home. Like other reverse mortgages, PTD loans are generally paid off from the proceeds of the sale of your home.
In some states, PTD loans are available on a uniform, statewide basis. In many others, the program is not available in all areas, or is not the same in all the areas where it is available. Eligibility criteria vary considerably. Most PTD programs are limited to homeowners aged 65 and over, with low or moderate incomes.
The amount of the annual PTD loan advance is generally limited by the amount of your property tax bill for that year. Some programs limit the annual advance to some part of the tax bill, or to a specific amount. The total amount you can borrow over the life of a PTD loan is limited in most programs. In other words, you may become ineligible for additional annual loan advances at some point in the future. PTD programs generally do not permit these loans to be "subordinate" to other loans, meaning that you cannot have a PTD loan and another reverse mortgage at the same time.
Like deferred payment loans, PTD loans generally charge no origination fee, no insurance premium and minimal, if any, closing costs. The interest rate is usually fixed, but it varies from program to program. In some cases, interest is charged on a simple basis, that is, no "interest on interest."
Property Tax Deferral–Available Near You
A 1998 AARP study reported that at least one type of PTD program was available in parts or all of the following states: California, Colorado, Florida, Georgia, California, Colorado, Illinois, Colorado, Iowa, Colorado, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, North Dakota, Oregon, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Wyoming, and the District of Columbia.
If you live in one of the states listed above, contact the local government agency to which you pay your property taxes. This agency can tell you if the program is available in your area, and what you must do to qualify. It can also give you details on how the program works.
Glossary
Property tax deferral loans: Reverse mortgages that provide annual loan advances for paying property taxes.
Deferred payment loans: Reverse mortgages that provide lump sums for repairing or improving homes.
Additional resources
National Resource Center on
Supportive Housing and Home Modification
A comprehensive guide to adapting the living environment intended
to increase ease of use, safety, security and independence.
Universal Design Home
Modification
Modifying your home according to these universal specifications
will result in a living space appropriate for every age.
