What is a Reverse Mortgage?
A Reverse Mortgage makes payments to you, as opposed to you making payment to your mortgage. This can be in a lump sum or monthly, depending on what kind of mortgage program you use.
A Reverse Mortgage is a loan program specifically designed for people aged 62 years or better, that allows you to receive payments from your home using your accumulated equity. With a Reverse Mortgage you can pay off your existing mortgage and make no monthly payments, as long as you live in your home.
- Are you and your spouse 62 years or better?
- Do you own your home?
- Do you live in your home for at least 6 months out of a year?
If your answer to these questions is or soon will be ‘Yes,’ you may want to find out if a Reverse Mortgage makes sense for you.
Haven’t I heard bad things about this kind of mortgage?
Reverse Mortgages aren’t well understood, sometimes even by financial professionals, unfortunately. Add to that a history without enough protection for the home owner, and voila: bad reputation.
- There are many more protections for the home owner than there used to be.
- You cannot get upside-down with a reverse mortgage
- YOU own your home.
- To protect you, there is a mandatory counseling session with an independent third party counselor approved by the U.S. Department of Housing and Urban Development (HUD) in your local community. The purpose of this is to educate you about any cost of obtaining the loan, financial implications, repayment conditions, your obligations, and alternatives in case this isn’t the right solution for you.
- The only way you can endanger your Reverse Mortgage and homeownership is if you stop living in and maintaining your home, or stop paying your insurance and property taxes.
- A Reverse Mortgage is simply a certain type of mortgage product – a tool that can help if used appropriately. It is good for some and not for others. We hold classes that help people distinguish truth from fiction, and we encourage you and your loved ones to attend.
Will I Be Able to Leave My Home to My Children?
Absolutely. It is your home. Many concerned loved ones mention this when someone is considering a Reverse Mortgage. Our classes are a perfect place for you to come together, and bring all of your questions:
A Reverse Mortgage is simply a mortgage – a lien on your property in exchange for money. You decide how large it can get – just as you would in a refinance. The difference is in who gets paid, how, and when. In this case, it is you who receives the payment(s), and repayment of the loan is deferred to after you no longer live in the home.
How Does a Reverse Mortgage Work?
A Reverse Mortgage is a lien against your property, just like a ‘regular’ mortgage, therefore you need to have equity in your home or be able to provide monetary investment at closing from an allowable funding source. You then receive payment, drawing on that equity – lump sum or monthly, depending on what kind of Reverse Mortgage you’re using. You continue to own your home, just as you do with a ‘regular’ mortgage. You cannot get upside-down with a reverse mortgage. That may have been true once, but there are protections in place now that prevent that from being possible.
- Reverse mortgages are non-recourse loans. That means, if the property is sold to payoff the loan when the homeowner passes away or decides to leave the home for other reasons, the reverse mortgage debt will be paid off using the proceeds from the sale. In this scenario, the maximum amount owed will be the current market value of the house. Should the homeowner’s heirs want to keep the home, they would pay the balance in full to the reverse mortgage lender.
- Reverse mortgages have no time limit on how long seniors can stay in their homes. Since homeowners still own the property, lenders cannot evict them, provided they continue to live in and maintain their home, pay insurance and property taxes.
- Borrowers are required to counsel with independent, third party counselors approved by the U.S. Department of Housing and Urban Development (HUD) in their local communities.
- Reverse Mortgages are insured by the government through the Federal Housing Administration (FHA)
Can I Purchase a Home With a Reverse Mortgage? Yes!
We have a Reverse Mortgage Specialist on staff who can speak with you about your options:
* Although there are no monthly payments, interest accrues on the portion of the loan disbursed. The borrower will continue to be responsible for paying property taxes and homeowner’s insurance on time, and maintaining the home in good condition as their primary residence. Please consult your Fairway Loan Officer for details.