A reverse mortgage is a type of loan that allows a homeowner to borrow from a lender using their home as security. (In other words, a borrower is withdrawing part of their equity in their home.) While the homeowner remains responsible for property taxes, insurance, and upkeep costs of the home, they do not have to make regular payments on the loan until they no longer live in the house. However, interest and fees on the loan continue to grow during this time.
The most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM). It is the only reverse mortgage insured by the U.S. Federal Government and is only available through a FHA-approved lender. The amount of a HECM is determined by the age of the borrower (and the age of their spouse, if applicable), current interest rates, and the appraised value of the house. To qualify for a HECM, a borrower must:
- be at least 62 years of age
- own, or mostly own, their property
- reside primarily at the property
- have no outstanding federal debt
- be financially able to pay taxes, insurance, and upkeep costs for the property
- participate in a consumer information session to fully understand the terms of the HECM
- Meet other financial and property requirements.
When a borrower takes out a reverse mortgage, they are in the unusual position of having their loan amount increase over time, rather than decrease. Because the borrower is not required to make any payments, the loan amount will continue to accrue interest and fees; correspondingly, the borrower’s equity in the home will decrease. When the borrower moves or dies, they (or their heirs) are responsible for paying the balance of the loan— usually by selling the property.
Thus, when considering a reverse mortgage, a homeowner must weigh their interest in maintaining their ownership of their home, either for themselves or their heirs, against the financial relief of more immediate income. If more financial resources would make a meaningful difference in a borrower’s quality of life, then a reverse mortgage may be appropriate. If you would like more information about reverse mortgages, please give us a call. We would be happy to talk to you about your options.
PRMI – Great Lakes Division has been helping clients purchase homes since 1998 and is backed by one of the most established mortgage lenders in the county with a nationwide presence. We offer a variety of loan programs and service the greater Wooster, Ohio area – including 17 nearby counties. Are you looking for a trusted lender? Contact us by phone at 866.888.7902.
*Opinions expressed are solely my own and do not express the views of my employer.
This ad is not from HUD or FHA and was not approved by HUD or any government agency.
The loan is subject to foreclosure for failure to pay taxes and insurance to maintain the property and insurance and to comply with the terms of the loan. Consumers remain responsible for property taxes, homeowner’s insurance, and home maintenance. Non-HECM (non-government program) reverse mortgage loans do not have upfront, or ongoing Mortgage Insurance
Premiums (MIP). Borrower(s) are still required to pay applicable taxes and homeowner’s insurance. The loan is subject to foreclosure for failure to pay taxes and insurance to maintain the property and insurance. Some products and services may not be available in all states. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower (s) qualification. This is not a commitment to lend.
Sources:
https://www.consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgage-en-224/
https://www.forbes.com/advisor/mortgages/is-reverse-mortgage-a-rip-off-or-good-idea/
https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou
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