What is Reverse Mortgage?

According to the U.S. Department of Housing and Urban Development (HUD), about half a million Americans who are 62 or older currently hold a reverse annuity mortgage.

A reverse mortgage is simply a home equity loan that is designed to defer your mortgage interest and is secured by your home.

With a traditional mortgage loan, the homeowner makes scheduled monthly payments over a specified term (usually 10-, 15-, or 30-year mortgage loans). With a reverse mortgage, the interest is not due until the loan reaches maturity. As long as the homeowner continues to reside in the home and pays their property taxes and insurance, they can take advantage of holding off on monthly payments on the amount they borrowed.

To qualify for a reverse mortgage, a homeowner must be 62 years old or older with substantial equity in their home. There are no income or credit score requirements and no monthly repayments, but the homeowner must continue living in the home as the primary residence and pay property taxes and insurance.

The amount of money a homeowner can borrow with a reverse mortgage loan is dependant on:

• Appraised value of the home;
• Balances of any outstanding mortgages and other liens;
• Interest rate to be applied;
• The homeowner’s age;
• Whether proceeds are taken as monthly payments, a line of credit, or in a lump sum.

A reverse mortgage is a form of installment borrowing. The loan does not have to be repaid unless paid voluntarily, or until the homeowner dies, the home is sold, or the owner vacates the property for more than one full year.

Keep in mind, however, that the beneficiaries of the home will ultimately be responsible to pay off the loan once the homeowner dies. The heirs have up to 12 months to complete a sale or pay off the balance of the loan. If the heirs choose not to act, the reverse mortgage lender will have to foreclose on the home. In the event that the sale of the home does not produce sufficient funds to pay off the balance of the reverse mortgage, the government insurance the homeowner would have paid as part of closing the reverse mortgage loan will cover the estate.

Reverse mortgage loans are meant for those who do not have enough income to meet their needs. However, because there are costs associated with setting up a reverse mortgage, such as appraisal and origination charges, it is not recommended for homeowners who don’t intend to continue living in their home long-term.

The Federal Housing Administration requires anyone looking at a reverse mortgage option to receive independent 3^rd party counseling by phone or in person. Once the counseling is completed, the homeowner will receive a certificate of completion, which is then delivered to the lender of their choice. Approved counseling agencies can be found here.

A reverse mortgage loan is a decision that requires careful thought and planning. Contact us today to discuss whether a reverse mortgage is the right option for you.

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