Introduction to Reverse Mortgage

We are dedicated to explaining how a reverse mortgage works and to help you make an informed decision about your financial future. Over 150,000 older Americans have benefited from reverse mortgages. A reverse mortgage can be a very useful tool in any well-balanced retirement plan. By converting equity into income, a reverse mortgage is a way to stay in your home and receive cash to use for any purpose – whether it is medical expenses, daily living expenses, home maintenance or any other expense. If you plan to live in your home into the foreseeable future and would like to stop paying your monthly mortgage payment then this product may be right for you. Homeowners that own their home free and clear will have more proceeds available at closing to spend as they wish.

The Home Equity Conversion Mortgage (HECM)

The Home Equity Conversion Mortgage (HECM) is the oldest and most popular reverse mortgage product, accounting for 90-plus percent of the total market. Available since 1989, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development. Since FHA insures every HECM, you will never owe more than the value of your home. With the addition of mortgage insurance, reverse mortgages have evolved from the unstructured bank loans of the past into a regulated, tax-free financial solution. The information found within this web site generally refers to the HECM product because our reverse mortgage business is 95% or more HECMs. We encourage you to read more about our products in order to make a financially sound decision.

Basics of a Reverse Mortgage

To be eligible for a reverse mortgage, any interested individual(s) must be 62 years old or older. In the case that a husband is over the age limit and his wife is under the age limit (or vice versa), the older of the two homeowners would still qualify for a reverse mortgage. Another important factor in determining qualification is that you must have a low mortgage balance compared to your home’s value or own your home outright. The final requirement is that your home be your primary residence and be a single family dwelling or two-to-four unit property. Townhouses, detached homes, units in condominiums, and some manufactured home are eligible. The Federal Housing Administration (FHA) must approve all condominiums. Second homes are considered on a case-by-case basis.

How Much Money Do I Get From My Home?

The amount of money you receive as proceeds depends on your age, the current interest rates, loan fees, and the appraised value of your home or FHA’s mortgage limit for your county, whichever is less. Older homeowners with no mortgage balances and higher valued homes will receive the most proceeds. Home Equity Conversion Mortgages (HECMs) created by the Department of Housing and Urban Development (HUD) have monthly or annually adjustable interest rates. You will find that rates are fairly similar amongst reverse mortgage companies, as are the loan fees (due to HUD regulations). The HUD lending limit depends on the county, meaning that if your home is appraised for less then the limit you would have access to all of the equity based on your age and the interest rate. If your home is appraised for more then the limit, you would have access to the amount of the county limit based on your age and interest rates. The remainder of the equity is retained by the homeowner.

How Do I Receive My Proceeds?

The proceeds from a reverse mortgage are available in four different ways – a lump sum check, term payments, tenure payments, or a line of credit. You are also allowed to receive a combination of the above options. Term payments are fixed payments over a fixed amount of time. To calculate the amount of each monthly term payment, take the lump sum amount and divide by the amount of months you desire income. Tenure payments are a fixed amount of income received monthly as long as one homeowner continues to occupy the residence. The amount is based on the assumption that all individuals live to 100 years of age. The line of credit is one of the more popular options because it will grow yearly at an adjustable rate that mirrors the interest rate. The homeowner will receive withdrawal request forms and have access to all of the money on the credit line to spend as he/she pleases. Any money not spent or received before the homeowner exits the property will be returned into the equity of the home.

What Happens To My House And How Is The Loan Paid Back?

Reverse Mortgages are considered “non-recourse” loans, meaning your home is the only collateral used for the transaction, even if your loan balance exceeds the value of your home. There are no monthly payments and the loan is not due and payable until the borrower listed on the loan no longer occupies the home as his/her primary residence. In the case husband and wife are listed on the loan, both borrowers must no longer live in the home for the loan to be due.

When the final borrower no longer occupies the property as his/her primary residence, the loan will be called due and the borrower or his/her estate will have a reasonable amount of time to pay off the remaining balance. This can be done one of several ways. The property can be refinanced with the outstanding balance paid off. A monthly mortgage payment will be incurred on the property in this case. The borrower or estate can also sell the property to pay off the loan balance. Any extra proceeds from the sale of the home are retained by the borrower or his/her estate. Listing the home in a newspaper advertisement or with a real estate agent are good faith signs of intent to sell the home. Six months is the initial period of time given to sell the home with two extensions applied as necessary for another ninety days.

What Are The Costs Associated With A Reverse Mortgage?

You will generally find a standard set of costs for a reverse mortgage no matter who lends you the money. All of the fees are rolled into your reverse mortgage and are not an out-of-pocket expense. Therefore, it is important to find a lender that is going to work extremely hard to keep you informed along the way. the attorney fee, appraisal fee, title examination fee, servicing fee, etc.

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