Reverse Mortgages
An Introductory Guide to How Reverse Mortgages WorkWhat is a Reverse Mortgage?
This page outlines the key facts about reverse mortgages and provides a good starting point for your investigation into this type of loan.
For some homeowners age 62 or older, a reverse mortgage can be a helpful financial option. It provides a way to tap into your home equity to receive loan proceeds for what you want or need while you still live in and own your home.
A reverse mortgage is not right for everyone. Your age, the value of your home, and your estate plans are among the factors that can help determine if a reverse mortgage will be advantageous to you. Please be sure to read your lender’s disclosure statement and obtain independent counseling to help you decide if a reverse mortgage is right for you.
Definition of a Reverse Mortgage
A reverse mortgage is a loan secured by your home that gives you loan proceeds now in exchange for your obligation to repay the loan in the future. It allows you to tap into the equity you’ve built up on your home over the years and receive funds to use in a variety of ways.
Through the life of your reverse mortgage, you continue to own and live in your home, as long as the terms of the loan are met. To be eligible for a reverse mortgage, one of the homeowners whose names are on the title of the property must be age 62 or older.
Our Videos
FREE Video Series – Getting a Reverse Mortgage:
Click on the button below to watch our series of ten short videos, which explain each facet of how a reverse mortgage works. You can download the videos and share with anyone you like – AND never receive another phone call or email from us. You are in complete control of what you want to know, when you want to it and how to take the next steps – if you are interested.
Your Responsibilities
During the life of your reverse mortgage, you are still the owner of the home and are responsible for paying all property charges including property taxes, required insurance, HOA fees if applicable, as well as maintaining the property as your primary residence. You can use the proceeds from your reverse mortgage to pay these expenses if you choose. Failure to meet these responsibilities can result in your being required to repay the loan even if you still own and live in the home.
Use of Proceeds
For many people, a reverse mortgage is a source of funds to cover monthly expenses. For others, it provides peace of mind for future needs. Generally, it is not advisable to use reverse mortgage proceeds to make a financial investment since the costs of the loan may exceed the investment return.
Impact on Your Government Benefits
Funds from a reverse mortgage generally do not affect regular Social Security or Medicare benefits. However, needs-based benefits, such as Medicaid and Supplemental Security Income (SSI), may be impacted. Contact a benefits professional about your particular situation.
Impact on Your Home Equity
Interest and FHA mortgage insurance are added to the loan balance during the period of the loan. Over time, the equity that you have in your home is reduced and the debt balance you owe grows—exactly the reverse of a traditional mortgage.
Repaying the Loan
Unlike a home equity loan or traditional mortgage, with a reverse mortgage, there are no monthly mortgage payments. Although there are no monthly mortgage payments, interest accrues on the portion of the loan amount disbursed. The borrower will continue to be responsible for paying property taxes, any required insurance premiums, and maintenance of the home as their main primary residence.
The loan becomes due when you sell the home, permanently move out, vacate for a period of 12 consecutive months (e.g., due to illness), or when all of the homeowners are deceased. At that time, the loan principal, interest charges, FHA mortgage insurance, and any fees must be paid in full. This can be done by selling the property, refinancing through a conventional mortgage, or using other assets.
The loan does not become due if just one of the co-borrowers passes away; the surviving borrower can continue to own and live in the home, and enjoy all the benefits of the reverse mortgage.
Any Impact on My Estate?
Home Equity Conversion Mortgage (HECM) reverse mortgages are non-recourse loans to the borrower, which means that the property alone stands for the loan amount to be repaid. The lender may not seek repayment from the homeowner’s income or other assets.
If you choose to repay the loan by selling the home, any sale proceeds in excess of the loan balance belong to you. If you sell your home for a fair market price that is less than the loan balance at the time of sale, there will be no proceeds to keep, but the bank cannot claim from you more than the sale amount received, provided that the sale is an arm’s length transaction in accordance with HUD guidelines.
The Reverse Mortgage Process
Schedule an Appointment
Counselor will Contact You
The Counselor will Collect from You
The Counseling Session
The counselor will discuss with you your needs & circumstances; provide info about reverse mortgages and alternative sources…
Certificate of Completion
Following Up with You
Have questions? Get answers.
News & Resources
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Video Testimonials – A Few Words from Our Clients
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Reverse Mortgage Process – A Step-by-Step Video Guide
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