What is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners over 62 years of age to convert some of the equity in their home into cash. Reverse mortgages are used to help retirees with limited income access the wealth they have accumulated in their home.
The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s reverse mortgage program. This program is a government-backed plan that gives senior citizens additional financial security to help them supplement Social Security or to use for anything else they’d like.
How a Reverse Mortgage Works
Unlike a traditional home equity loan or second mortgage, however, HECM borrowers defer the payment of the loan until they die, sell or move out of the home. The loan may also be called due and payable if the borrower does not comply with all other loan terms, such as paying taxes, insurance and maintenance costs.
In a conventional mortgage, the homeowner makes a monthly payment to the lender. After each payment, the homeowner's equity increases by the amount of the principal included in the payment. In a reverse mortgage, however, a homeowner is not required to make monthly mortgage payments. If payments are not made, interest is added to the loan's balance.
While you retain the title and deed, your loan is secured by a lien, and you can lose your home if you do not pay your property taxes and homeowner’s insurance, maintain your property and otherwise comply with the loan terms. Failing to meet these requirements can trigger a loan default that results in foreclosure.
The money from a reverse mortgage can be distributed in several different ways. Either in a fixed-rate lump sum, a line of credit, monthly “tenure” payments (payments for as long as the borrower lives in the home), or monthly “term” payments (larger payments, but only for a pre-determined period of time).
Although the rising loan balance can eventually grow to exceed the value of the home, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home.
We Want to Help
Reverse Mortgages can be a great benefit if an individual’s circumstances warrant it. However, reverse mortgages can also be risky and oftentimes require professional guidance. At Attorneys Funding Group, we pride ourselves on offering quality service to those considering a reverse mortgage and work to ensure their long-term stability. If you have questions, give one of our offices a call today.