About Reverse Mortgages
Reverse mortgages begin in 1988 under President Reagan, the are FHA-insured and the official name is Home Equity Conversion Mortgage, or HECM.
Reverse mortgages are for owner occupied primary residences.
The youngest borrower must be at least 62 years old.
You can have an adjustable or fixed rate reverse mortgage.
How Do You Get Paid Out?
Base on your financial needs and goals, the money can be paid out in four general ways:
- Cash in a lump sum at settle
- A monthly payment for a set number of year or tenure
- Line of credit (similar to a home equity line of credit)
- A combination of some of the above
When is the Loan Due?
The reverse mortgage is not due and payable until the last borrower (or non-borrowing spouse) dies, sells the house, or fails to live in the home for a period greater than 12 months. The loan may also become due and payable if the borrower fails to pay property taxes, homeowners insurance, lets the condition of the home significantly deteriorate, or transfers the title of the property to a non-borrower (excluding trusts that meet HUD's requirements). It is possible that the home can be foreclosed if one of these events occurs and borrower/estate fails to satisfy the loan.
Once the mortgage comes due, borrowers or heirs of the estate have several options to settle up the loan balance:
- Pay off or refinance the existing balance to keep the home.
- Sell the home themselves to settle up the loan balance (and keep the remaining equity, if any).
- Allow the lender to sell the home (and the remaining equity is distributed to the borrowers or heirs).
The HECM reverse mortgage is a non-recourse loan, which means that the only asset that can be claimed to repay the loan is the home itself. If there's not enough value in the home to settle up the loan balance, the FHA mortgage insurance fund covers the difference.