Home Equity Conversion Mortgages (HECM), the most common type of reverse mortgage loan, require you to keep up with your property taxes and property insurance. Failure to pay either of these can result in foreclosure. Generally, these loans need to be repaid when you move out of the house or when you die. However, the loan may need to be repaid sooner if the home is no longer your primary residence, if you don't pay property taxes or property insurance, or if you don't keep the house in good condition.
When you have a regular mortgage, you make payments to the lender every month to buy your home over time. With a reverse mortgage, the lender pays you. This type of loan takes part of the net worth of your home and converts it into payments for you, a kind of prepayment on the net worth of your home. The money you receive is usually tax-free.
You usually don't have to return the money while you live in your house. When you die, sell your home, or move, you, your spouse, or your estate would repay the loan. Sometimes that means selling the house to get money to repay the loan. The homeowner can choose which payments they prefer and only pays interest on the money used. If the homeowner moves or dies, all the money earned by selling the home is reimbursed to the lender who provides a reverse mortgage.
If a homeowner is unable to make these payments, the reversed mortgage loan could be declared overdue and potentially default, leading to foreclosure. To avoid this situation, homeowners should seriously consider whether or not they could continue to pay their property taxes and insurance before accepting a reverse mortgage. If you already have a reverse mortgage and are in this situation, don't panic. Nobody wants to foreclose on their home. Foreclosure is of no real use to anyone, not to banks, not to you or to the government.
This is because a reverse mortgage is a non-recourse loan and FHA insurance absorbs the balance of the loan. There are many good reasons why many homeowners choose to refinance their reverse mortgages. With most reverse mortgages, you have at least three business days after closing to cancel the transaction for any reason, without penalty. If you get a reverse mortgage of any kind, you get a loan in which you apply for a loan against the equity of your home. Mortgage capital conversion (HECM) mortgages for purchase allow you to buy a new home and obtain a reverse mortgage in a single transaction. And ask lots of questions to make sure a reverse mortgage works for you and that you're looking for the right one for you.
Instead, your lender gives you money, either in monthly payments or a lump sum, a line of credit, or a combination of the three forms. The capital limit is the total amount of loan income available on a HECM reverse mortgage before deducting closing costs and title taxes. Depending on the results, the lender may require that funds be set aside from the loan proceeds to pay for things such as property taxes, homeowners insurance and flood insurance (if applicable). While this mortgage program is certainly beneficial for many reasons, many homeowners don't realize that they have to continue paying their insurance premiums and property taxes in order to prevent their reverse mortgage from going into default. When you notice an increase in the value of your home mortgaged with a reverse guarantee, refinancing allows you to take advantage of the home's additional equity with the jumbo reverse mortgage program. If the loan balance is higher than the appraised value of the home, the heirs are not responsible for paying the difference or making the monthly payments. It's usually in your best interest to follow the payment plan and contact one of the counselors on the list.
The counselor should also be able to help you compare the costs of different types of inverted mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. The advisor should also explain possible alternatives to a HECM such as government and non-profit programs or a single-purpose or property reverse mortgage.