What is a Reverse Mortgage?

The National Reverse Mortgage Lenders Association defines Reverse Mortgage as “a special type of loan used by older Americans to convert (a portion of) the equity in their homes into cash” also known as a Home Equity Conversion Mortgage (HECM).  Reverse Mortgages have become a major source of funds for many seniors. The money from a Reverse Mortgage can be used for: daily living expenses, home repairs, and home modifications, medical bills and prescription drugs, pay off existing debt, continuing education, travel, in-home care, prevention of foreclosure and other needs.

A Comparison of HECMs and HELOCs

 

How is a Reverse Mortgage loan repaid?

While a Reverse Mortgage loan is outstanding, the borrower continues to own the home and hold title to it. No payments are due on a Reverse Mortgage while it is outstanding. The loan becomes due and payable when the borrower ceases to occupy the property as their principal residence. This can occur if the borrower sells the home, permanently moves out, or passes away. For details click here.

How is interest charged in a Reverse Mortgage loan?

The Reverse Mortgage loan may be either an adjustable rate loan or a fixed rate option. With an adjustable rate loan, the interest rate will change periodically based on the terms of the mortgage note. A change in this rate has no effect on the amount or number of loan advances that may be requested. The interest rate change will cause the balance to grow faster with a higher rate, or slower with a lower rate. With a fixed rate loan, the rate at the time the loan closes will not change for the life of the loan.

Important information to consider:

 

In order to retain the home when the Reverse Mortgage becomes due, the borrower(s) or the borrower’s heirs or estate must pay the entire loan balance. However, if the loan balance is greater than the value of the property, the payoff is limited to 95% of the market value at time of repayment.  As with any mortgage, the borrower(s) must meet their loan obligations, keeping current with property taxes, insurance, maintenance and any homeowners association (HOA) fees.  Repayment is required once the borrower(s) sells the home or no longer live there as their primary residence.  Proceeds from the Reverse Mortgage may affect eligibility for some governments programs such as SSI and Medicaid.  Contact your social worker or Social Security Administration office for specific guidelines.

 

To learn more, contact a Reverse Mortgage Banking Representative today!  

 

                                                             


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