About Reverse Mortgages
Learn More About Reverse Mortgages
What is a Reverse Mortgage?
A reverse mortgage allows borrowers age 55 or older to access part of the equity in their primary home without making payments. Accrued interest is simply applied toward the loan balance. If there is a current traditional loan balance on the home, the entire balance may be included in the reverse mortgage.
How do Reverse Mortgages differ from traditional Forward Mortgages?
Typical home equity loans, second mortgages, and home equity lines of credit (HELOC) have strict requirements for income and creditworthiness. The homeowners must make monthly payments to repay the loans, and are responsible for property taxes, insurance, and maintenance.
Typical Reverse Mortgages have no credit score requirements. Homeowners receive cash from lenders without being required to make monthly payments, and accrued loan interest is added to the balances of the loans. Homeowners are required to use their homes as their primary residences, and are responsible for property taxes, insurance, and maintenance.
How is money from a Reverse Mortgage distributed?
There are several ways to receive the proceeds from a reverse mortgage:
– Lump sum: A lump sum of cash at closing
– Tenure: Equal monthly payments as long as the homeowner lives in the home
– Term: Equal monthly payments for a fixed number of years
– Line of Credit: Draw any amount at any time until the line of credit is exhausted
– Any combination of the options listed above
Does the homeowner keep title to the property?
Borrowers maintain title and may remain in the home indefinitely, even if the loan balance becomes greater than the value of the home. The general loan conditions are: At least one homeowner lives in the home as their primary residence, continues to pay required property taxes and homeowners insurance, and maintains the home in accordance with FHA requirements.
Do heirs inherit an estate with a Reverse Mortgage loan?
Reverse mortgage loans are structured to preserve equity in the property. In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate has 6 months to either refinance the property/repay the HECM loan, or sell the property.
What happens when the home is sold? If the equity in the home is higher than the balance of the HECM mortgage, the remaining equity belongs to the estate. If the home sells for less than the amount of the mortgage, the lender must take a loss. No other assets are affected by a HECM mortgage: (Investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the mortgage.)
What are the Reverse Mortgage loan limits?
Please use our free calculator to estimate the available amount. This generally depends on four factors:
– Current interest rate
– Appraised value of the home
– Government imposed lending limits.
Why do people choose Reverse Mortgages?
This type of loan can benefit those who want to diversify their sources of retirement income and hedge against risks such as market downturns and outliving savings. This mortgage product can also help seniors who are short on funds for living expenses, and as a resource to allow seniors to remain in their homes after retirement.
Reverse mortgages, particularly the line of credit payment plan, can also be helpful in many situations. They can provide a source of emergency funds or income diversification, help pay for in-home care, and are a source of nontaxable income (because the money is a loan), so they won’t increase your income tax rate or Medicare premiums.
As in any important financial decision, a borrower should be well-informed. We require borrowers to attend counselling with a third-party HUD certified specialist that will review all the pros and cons of a reverse mortgage, and help ensure it is a good fit for them.