What is a Reverse Mortgage?
Reverse mortgage allow older people, age 62+, to immediately access the home equity they have built up in their homes, and defer payment of the loan until they die, sell, or move out of the home. The title of the property remains under the homeowner’s name(s). It is a mortgage loan, secured by a residential property, that enables the borrower to access their equity to eliminate mortgage payments. The loans are typically promoted to older homeowners and do not require monthly mortgage payments. Borrowers are still responsible for property taxes, homeowner’s insurance, and the upkeep of the property.
Who made this available?
The FHA-insured Home Equity Conversion Mortgage, or HECM, was signed into law on February 5, 1988, by President Ronald Reagan as part of the Housing and Community Development Act of 1989. The first HECM was given to Marjorie Mason of Fairway, Kansas, in 1989 by James B. Nutter and Company.
What happens to my loan balance?
Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually exceed the home’s value, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home.
What if my balance becomes greater than the value of my home?
In the United States, the FHA-insured HECM (home equity conversion mortgage) aka reverse mortgage, is a non-recourse loan. In simple terms, the 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 the home and the loan balance on their FHA-insured reverse mortgage was $125,000, and the home sold for $100,000, neither the borrower nor their heirs would be responsible for the $25,000 on the reverse mortgage loan that exceeded the value of their home. The extra $25,000 would be paid from the FHA insurance that was purchased when the HECM loan was originated. A reverse mortgage cannot 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 0.5% of the outstanding loan balance.
Who Reverse Mortgage is for:
Who wants to age in place and remain in their home for the rest of their life.
Who wants temporary or permanent mortgage payment relief.
Who needs to cash out their home equity.
Who wants or needs to increase their monthly cash flow.
Those with fixed/limited income.
Who wants temporary or permanent mortgage payment relief.
Who needs to cash out their home equity.
Who wants or needs to increase their monthly cash flow.
Those with fixed/limited income.
Who Reverse Mortgage is not for:
Who wants to leave their home free and clear of any loans or liens to their heir.
Who wants to payoff their mortgage.
Who doesn’t have much equity in their home.
Those under the age of 55 and/or whose spouse is under the age of 55.
Who wants to payoff their mortgage.
Who doesn’t have much equity in their home.
Those under the age of 55 and/or whose spouse is under the age of 55.
How can I qualify?
To qualify for the HECM reverse mortgage in the United States, borrowers generally must be at least 62 years of age and the home must be their primary residence (second homes and investment properties do not qualify). However, there are available Reverse Mortgage programs for borrowers who are at least 55 years old. For a reverse mortgage to be a viable financial option, existing mortgage balances usually must be low enough to be paid off with the reverse mortgage proceeds. However, borrowers do have the option of paying down their existing mortgage balance to qualify for a HECM reverse mortgage.