Reverse Mortgage

What is a Reverse Mortgage?

A reverse mortgage is a loan for senior citizens, age 62 or older, to borrow against the value of their home equity and receive cash funds. The house becomes a collateral and these funds do not need to be paid until the borrower sells the home, moves out permanently, or passes away. Overtime, home equity decreases as debt increases. Reverse mortgage is a good option for seniors whose net worth is mostly made of their home equity but do not have cash to spend.

 

Upon the borrower’s death, permanent move, or home sale, the proceeds of the home’s sale goes to the lender. Proceeds beyond this amount are received by either the homeowner, if they are still living, or their estate, if they are deceased. And heir can pay off the mortgage in order to keep their home.

 

Types of Reverse Mortgage
  • FHA Home equity conversion mortgage (HECM): A mortgage backed by the federal government. Also the most common type of reverse mortgage.

  • Single-purpose: Cheapest reverse mortgage, offered by (some) state, local, and nonprofit agencies.

  • Proprietary: Mortgages backed by private lenders and for homes that exceed the lending limit of $970,800.00 for HECMs.

 

Proceed Types of a Reverse Mortgage

Borrowers can receive proceeds from a reverse mortgage as either a lump sum, monthly payments, term payments, a line of credit, or a combination of monthly payment or term payments plus a line of credit.

 

Requirements

Borrowers for a reverse mortgage must meet the following requirements:

  • Be aged 62 or older

  • Own a home built on or after June 15, 1976

  • Own the home or have at least 50% home equity

  • Live in and maintain the home property

 

Additional Notes of Caution

Borrowers interested in reverse mortgages should be careful of scams. Advisors, caregivers, contractors, and even relatives can take advantage of seniors, encouraging a reverse mortgage for a variety of reasons in order to steal proceeds.

 

Borrowers should also make sure to meet requirements for the mortgage, such as keeping the house in good condition, and consistently paying property taxes and insurance. Failing to meet requirements may mean losing the home to foreclosure.