A reverse mortgage is a specialized loan for individuals or married couples who are 62 and older. The loan converts home equity into accessible funds via a line of credit, monthly payments or a lump sum. It can also be used to purchase as home. Unlike other home equity loans, the borrower is not required to make payments on reverse mortgages, instead the loan comes due after the borrower(s) passes away or permanently leaves the residence. Reverse mortgages can also be used to purchase a home, requiring a down payment but no mortgage payment thereafter.
A reverse mortgage is a home equity loan that calculates the amount a borrower can receive based on the current appraised value of the home and age of the youngest eligible borrower. Married couples or single individuals who are 62 or older can apply. There are certain credit and financial requirements of the borrower(s), and they are required to attend a third party counseling session to ensure they fully understand how the loan works and don't have any unanswered questions. Reverse mortgages can also be used to purchase a home, requiring a down payment but no mortgage payment thereafter.
A reverse mortgage is a specialized type of home equity conversion loan that is available to individuals and married couples age 62 and older. This loan converts the equity in the home to accessible funds that the borrower may use any way they see fit. Unlike other home equity loans, reverse mortgage borrowers are not required to make payments on the loan until they either pass away or leave the residence permanently.
The average amount a reverse mortgage borrower gets varies depending on where they live, the amount of equity in the home, the current interest rates, and the age of the borrower(s). The older the borrower is, the more funds are available. Additionally, because the calculation is based partly on the current appraised value of the home, this changes from city to city, state to state, and even month to month, as do interest rates. The maximum amount available at this time is $765,600. In the case of a reverse mortgage for purchase, all these same factors determine the cost of the home a borrower can purchase and how much their down payment needs to be.
Individuals and married couples age 62and older can apply for a reverse mortgage loan. Other requirements must be met, including credit and financial standards to ensure the borrower(s) can keep up with home care, utilities, insurance, and property taxes. The home must be a single family home or a 2-4 unit home with one unit occupied by the borrower as their permanent residence. Most HUD approved condominiums and townhomes also meet FHA requirements. These requirements are the same for a reverse mortgage for purchase.
Typically 50-55% equity is recommended when applying for a reverse mortgage loan, but discussing individual situations and circumstances with a reverse mortgage specialist is best.
Yes, a reverse mortgage can be paid off early. To do that, the borrower would need to contact the loan company and determine the pay off balance. It can also be paid off if the home is sold.
When the borrower passes away, or in the case of married couples when the last borrower passes, the home will transfer into the estate or a specific person according to the wishes expressed in the homeowner’s will. At this time there are three main options: pay off the remainder of the loan, obtain a conventional loan, or sell the home. Because most reverse mortgages are FHA insured, the heirs will never owe more than the home is worth at the time of the borrowers passing even if the amount due is much more than the current appraised home value. Additionally, if the home is worth more than the amount owed on the loan, the heirs will receive any proceeds above the loan amount due. Typically 6 months is given to work with heirs after the passing. If the home was not left to any heirs, it will become property of the bank to sell and repay the loan.
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Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees may be assessed and will be added to the loan balance. As long as you comply with the terms of the loan, you retain title until you sell or transfer the property, and, therefore, you are responsible for paying property taxes, insurance and maintenance. Failing to pay these amounts may cause the loan to become immediately due and/or subject the property to a tax lien, other encumbrance or foreclosure. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan, or use other assets to repay the loan in order to retain the property.
These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. For licensing information, go to: www.nmlsconsumeraccess.org
Jan Jordan services the areas of Boulder, Loveland, Broomfield, Longmont, Louisville, Colorado.
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