A reverse mortgage is a loan for senior homeowners that allows them to access part of their home’s equity. A borrower can receive the cash distribution in a lump sum, in equal monthly payments, as a line of credit or in a combination of these options. The borrower is not required to make monthly mortgage payments, which differs this loan from a traditional home equity loan.
Generally, the reverse mortgage is not “due” if the borrower meets certain obligations. For example, you must live in the home as your primary residence, pay property taxes and insurance, as well as maintain the house.
Click on the video below to understand reverse mortgage basics.
Reverse mortgages don’t work the same way as other home loans. Watch this short video to help answer some of your questions.
We have local and licensed loan specialists who will answer your questions and give guidance based on your specific needs and concerns.
There are several aspects of reverse mortgage loans that make them attractive to homeowners. The proceeds can be tax-free, the heirs have the option to keep the home and the loan is non-recourse, which can protect the estate if the home value falls below the loan value.
However, reverse mortgage loan is complicated and can lead to difficulty for the borrower to pay lump sum taxes or insurance premiums, meaning they may not be appropriate for everyone. There are now safeguards in place to help homeowners avoid any negative consequences of taking out this type of loan.
Continue reading to determine whether you qualify for a reverse mortgage.
The FHA-insured Home Equity Conversion Mortgage, or HECM, was signed into law in 1988.
The reverse mortgage solution is a non-recourse loan in the United States. Borrowers are not responsible to repay any loan balance that exceeds the net-sales proceeds of their home. For example, if the last borrower left his or her home and the loan balance on the reverse mortgage was $125 thousand, and the home sold for $100 thousand, neither the borrower nor the heirs would be responsible for the $25 thousand on the reverse mortgage loan. This is true even though the loan exceeded the value of the home. The extra $25 thousand would be paid from the FHA insurance that was purchased when the HECM loan originated. Additionally, a reverse mortgage can’t go upside down. The cost of the FHA mortgage insurance is a one-time fee of 2% of the appraised value of the home, and then an annual fee of .5% of the outstanding loan balance.
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