February 24th, 2012
I’ve seen many ads on TV about Reverse Mortgages. Just what is a Reverse Mortgage and how does it work?
Essentially, a Reverse Mortgage is a mortgage that pays you, the borrower, instead of you paying the bank. A borrower must be age 62 or older and live in the home as a primary residence. There are no income requirements except that the borrower needs sufficient income to maintain taxes and insurance payments as well as the upkeep on the house. The borrower keeps title to the home and owes no payments until the last borrower on the loan leaves the home or fails to make required payments on taxes and insurance. Almost all Reverse Mortgages are government insured programs called Home Equity Conversion Mortgages (HECM) offered through HUD/FHA.
How much can I borrow?
The amount is based on the value of the property and the age of the borrower. The older the applicant, the more that the borrower is eligible to receive. Proceeds may be used for any legal purpose. Payments may be made in a lump sum to pay off your current mortgage, pay for a home improvement project, purchase a new primary residence or a vacation home, fund a long term care insurance policy, or any number of purposes. Payments can also be received on a regular monthly basis to supplement income or perhaps to assist in paying for home health care. Another option is to establish a line of credit to have available for whenever the need arrives, or a combination of any of these payment methods. Whatever you select, the payments are not taxable as income and will not affect your social security payments or your medicare.
What happens when I leave my home?
When the last borrower leaves the home, the loan becomes due and payable. If the home is sold, the mortgage is paid and any remaining funds are paid to the borrower or his/her heirs. If an heir wants to keep the home, it can be accomplished by refinancing the mortgage on the home. If the mortgage balance is greater than the value of the home, the borrower or his/her estate does not owe the difference on the loan as a Reverse Mortgage is a nonrecourse loan.
How do I get a Reverse Mortgage?
Talk to a Reverse Mortgage professional with your mortgage company or bank. All applicants for a Reverse Mortgage are required to complete counseling on the product through a HUD approved counselor before submitting an application to ensure that you understand the product.
Independent studies have repeatedly found that most Reverse Mortgage borrowers are happy with their loan and would do it all again. Reverse Mortgages – It’s all about a better life…
Lois Holmes-Raible (NMLS# 259637) and Charlene Turner (NMLS# 456052) are the Reverse Mortgage Team at Tidewater Home Funding. For more information, please call 757-366-8690.