Reverse mortgages are a great way for seniors to access the equity in their home and convert it into cash. Under the terms of a reverse mortgage, the home you are applying for a loan against must remain your primary residence for the life of the loan. This means that you can stay in your home without making monthly mortgage payments, either until you move out or die. The full loan balance, up to a limit, matures and is repaid when the borrower dies, moves permanently, or sells the house.
Federal regulations require lenders to structure the transaction so that the loan amount does not exceed the value of the home. If you have a Home Equity Conversion Mortgage (HECM), your heirs must repay the full balance of the loan or 95% of the home's appraised value, whichever is lower. When you get a reverse mortgage loan, the title to your home stays in your name. It's just like a traditional mortgage, in the sense that you simply file a lien against the property, just like any other mortgage loan.
The main difference between a traditional loan and a reverse mortgage is that there are no monthly mortgage payments required with a reverse mortgage. However, since the house remains in your name, you are still responsible for paying all your property taxes, as well as homeowner's insurance and any maintenance. It is also possible to use a reverse mortgage called “HECM” to buy a different home than the one you currently live in. If you're 62 or older and want money to pay your mortgage, supplement your income, or pay for health care expenses, you may consider applying for a reverse mortgage.
The Department of Housing and Urban Development (HUD) provides a list of approved reverse mortgage counseling agencies you can choose from. Supplementing retirement income, covering the cost of necessary home repairs, or paying out-of-pocket medical expenses are common and acceptable uses of reverse mortgage income. If you own a higher-value home, you may get a larger loan advance from a reverse mortgage. A reverse mortgage is a loan that allows homeowners aged 62 and older to access part of the equity in their home and converts it into cash.
When it comes time to pay off your reverse mortgage, there are several options available to you. You can pay off the loan with proceeds from selling your home or with funds from other sources such as investments or savings accounts. You can also refinance your existing loan into another type of loan such as an adjustable rate mortgage (ARM) or fixed rate mortgage (FRM). As part of your plan, make sure you have a will before applying for a reverse mortgage to ensure that all your assets (including your house) are transferred to the right person at the time of your death.
It is important to remember that if you do not keep up with taxes and insurance payments on your home during the life of your reverse mortgage, then you could lose your house. Impersonating a government agency is also a federal crime and any reverse mortgage lender must follow HUD rules. Over the years, there have been some unfortunate cases of older people losing their home with a reverse mortgage due to not following these rules. If you suspect that your reverse mortgage lender is violating the law, you should report it to the FTC or your state's attorney general.