Reverse mortgages can provide senior homeowners with money to meet daily living expenses and to maintain independence in their own homes and communities. Reverse mortgage loans allow senior homeowners to take advantage of their home’s value (‘equity’) without having to sell the home or to make monthly mortgage payments. Reverse mortgage loans do not have to be repaid for as long as the borrower lives in the home. However, Reverse mortgage loans are not for everyone and homeowners should consider all options before getting a reverse mortgage loan. Reverse mortgage loans have high fees that are paid when a homeowner gets the loan.
The most available kind of reverse mortgage loan is the Home Equity Conversion Mortgage (HECM) that is insured by the Federal Housing Administration (FHA). Any ‘FHA lender’ can offer the HECM loan.
To be eligible for a reverse mortgage loan, all owners and borrowers must be at least 62 years old, the borrowers must own the home and live in it as their principal residence, and all existing mortgages and liens must be paid off with the reverse mortgage loan proceeds. The home can be a single-family home, condo, or 2- to 4-unit residence.
Reverse mortgage loans are not based on the borrower’s credit history or income, but instead are based on the age of the youngest borrower, the property value, and the reverse mortgage loan interest rate. When a borrower gets a reverse mortgage loan, the loan is used first to pay all mortgages or liens and pay closing costs. Any remaining reverse mortgage loan proceeds can be paid to the borrower all at once, in monthly installments deposited into the borrower’s account, as a credit line that the borrower can draw from as needed; or as a combination of the monthly payments and the credit line. Borrowers getting a reverse mortgage loan must get counseling from a reverse mortgage counselor registered on the HUD Roster before the loan can be approved.
Borrowers who get reverse mortgages still own their homes and are responsible for paying property taxes, property insurance, and keeping the home in good repair. The reverse mortgage loan will accrue interest each month and the amount that has to be repaid will increase over time. The Reverse Mortgage loan comes due when the last living borrower either sells the home, dies, or moves out of the home for 12 consecutive months. At the death of the last surviving borrower, the borrower’s heirs have 6 to 12 months to pay off the loan by selling the home, refinancing, or turning over the deed to the lender.
Reverse mortgage loans offer benefits such as financial independence, tax-free funds for living expenses and eliminating mortgage payments. All equity that remains when the loan is paid off belongs to the borrower or the borrower’s estate. The FHA insurance protects the borrower by insuring that the amount that has to be repaid will never be more than what the home is worth, no matter how much is owed.
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