Reverse Mortgage Options
A reverse mortgage is a non-recourse loan, meaning the cash value of a borrower’s house is what is used to pay the loan, with a portion of the home equity serving as collateral. Reverse mortgages can provide a steady source of income for seniors who have already paid off their homes and do not wish to sell or refinance them. If the home is sold or refinanced, typically after the borrower’s death, proceeds from that transaction will be used to repay the reverse mortgage. Loan repayment is not required until the last remaining homeowner passes away and any remaining equity can be passed on to the borrower’s heirs. If the home sells for less than the balance of the reverse mortgage, the estate is not held responsible for making up the difference. The lender is not allowed to claim or take any assets from the estate as compensation of their loss. The repayment process typically takes place approximately 6 months after the time of passing.
To qualify for a reverse mortgage, the borrower must be a homeowner at least 62 years old. In addition, there are no income or credit score requirements for the loan. The home must not have any existing liens, but if there is still a mortgage, the equity from the reverse mortgage can pay off the mortgage balance. Although the homeowner is no longer considered responsible for the mortgage, they must still handle real estate taxes and insurance.
Single-purpose reverse mortgages are offered by local and state agencies and nonprofits. Federally-insured reverse mortgages (HECMs) are offered by the U.S. Department of Housing and Development (HUHD). “A HECM reverse mortgage loan has to be completely paid off when the last surviving borrower dies, sells the home, or permanently moves out. A “permanent move” is defined as living somewhere else for one continuous year. For instance, a borrower who stays in a nursing home or assisted living for more than 12 continuous months has made a ‘permanent move.’” -- https://www.consumerfinance.gov/askcfpb/236/when-do-i-have-to-pay-back-a-reverse-mortgage-loan.html
Proprietary reverse mortgages are offered by private lenders. Single-purpose reverse mortgages are the cheapest option, but there usage is limited to a purpose specified by the lender. HECMs have higher costs, but they have no usage limitations. Prior to the application process, prospective borrowers are required to meet with a counselor from a government-approved housing counseling agency. Alternatives, costs, and implications are discussed during the counseling process, and counselors help borrowers compare the different costs of pursuing different options. Costs typically include: origination fee, a mortgage insurance premium, and service fees during the mortgage. These costs can often be financed by the loan proceeds.BackNext