Reverse Mortgages

A reverse mortgage is a type of home equity loan that allows you to convert some of the existing equity in your home into cash while you retain ownership of the property. Equity is the current cash value of a home minus the current loan balance.

A reverse mortgage works much like a traditional mortgage, except in reverse. Instead of the homeowner paying the lender each month, the lender pays the homeowner. As long as the homeowner continues to live in the home, no repayment of principal, interest, or servicing fees are required. The funds received from a reverse mortgage may be used for anything, including housing expenses, taxes, insurance, fuel or maintenance costs.

To qualify for a reverse mortgage, you must: 

1.  own your home
2.  live in the home as your primary residence (greater than 50% of the year)
3.  have a minimum of 50% equity
4.  be at least 62 years old

You may choose to receive the reverse mortgage funds in a lump sum, monthly advances, as a line-of-credit, or a combination of the three, depending on the reverse mortgage type and the lender. The amount of money you are eligible to borrow depends on your age, the amount of equity in your home, and the interest rate set by the lender.

Because the borrower retains ownership of the home with a reverse mortgage, the borrower is still responsible for the following:

1.  property taxes
2.  home insurance
3.  repairs and maintenance

Depending on the plan selected, a reverse mortgage is due with interest either when the homeowner:

1.  permanently moves (home is no longer the primary residence)
2.  sells the home
3.  dies
4.  or the end of a pre-selected loan term is reached

A Reverse Mortgage is a non-recourse loan and therefore, the home is the only property that "must" settle the loan when due.  If the homeowner dies, there are several options:

1.  The heirs pay off the loan, typically by refinancing the loan into a forward mortgage (if the heirs meet eligibility requirements) or
2.  By using the proceeds generated by the sale of the home.
3.  If options 1 or 2 are not acheivable for "whatever" reason, the bank will then take the home back and excute option 2 to settle the loan debt.