True facts about reverse mortgages
Most web visitors want basic reverse mortgage facts without the hype, so that’s what we present here. Simply put, a reverse mortgage is a loan. More specifically, it’s a type of loan that is only available to eligible seniors, and is borrowed against the equity in their home. The key to eligibility lies in the equity, and how much equity the borrower has will determine whether they can use a reverse mortgage. As you know, when a reverse mortgage is taken out the homeowner borrows against the equity in their home and converts it into cash income, with no monthly mortgage payments, to live on for as long as their equity will allow.
- Designed for borrowers age 62 or older, in a primary residence
- Multiple payment options, proceeds do not have to be paid back in the borrowers lifetime
- Tax free income
- Non-recourse loan (you never owe more than the value of the home)
- Checks and balances in place (like mortgage counseling) so your well being is protected
Aside from the benefits of the income and lack of mortgage payments, one of the greatest advantages of reverse mortgages for the senior is the ability to stay in their home. They won’t have to see the beloved house they’ve spent years of their lives in sold to someone else; instead, they can spend the rest of their lives in the comfort of their own home. This can lead many seniors to consider reverse mortgages as the foundation to their retirement plan, and their loan originator should know how best to guide them through the process.
When someone takes out a reverse mortgage, they’re borrowing against the equity in their home. This means that the borrower will need considerable home equity, typically at least 50%. They can receive the funds from the reverse mortgage as a fixed monthly payment, a line of credit, or as a lump sum. As a reminder, the borrowers are not required to make any loan payments, but the entire loan balance is due and payable when the borrower sells the home, permanently moves away, or passes away.
Federal regulations require that lenders set up the transaction in a way that does not allow the loan amount to exceed the home’s value. In the case of the loan balance becoming greater than the value of the home, the lender is required to ensure the borrower or the borrower’s estate will not be held responsible for paying the difference. A common example of a situation when the loan balance exceeds the value of the home is when it suddenly drops in market value.