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Reverse Mortgage Product Explanation

Product Background

The U.S. Department of Housing and Urban Development (HUD) established the reverse mortgage product through the Housing and Community Development Act of 1987. The federally-insured reverse mortgage was established to assist homeowners struggling with dwindling income during retirement to unlock the equity invested in their homes. Since inception, the reverse mortgage has become a very popular financial option for homeowners aged 62+, with more than $29 billion in reverse mortgages originated in 2009.

Federally-Insured Reverse Mortgages

Federally-insured reverse mortgages are non-recourse loans. This means the total amount owed when the loan becomes due can never exceed the value of the property. The borrower and the borrower’s heirs are protected in situations where the loan amount is greater than the property value when the loan is due to be repaid. This protection is guaranteed by the Federal Housing Administration (FHA).

Home Equity Conversion Mortgages (HECM) are insured by the U.S. Government through HUD/FHA. Most reverse mortgages originated today are HECM loans. There are private sources of funding reverse mortgages which offer higher loan amounts in some instances, but which lack some of the protections afforded by an FHA HECM reverse mortgage.

Easy Eligibility

Qualifying for a reverse mortgage is simple:

  • Only homeowners aged 62+ can qualify
  • Income is not a factor
  • Credit profile or score is not a factor
  • State of health is not a factor
  • Homeowners must live in the home as their principal residence
  • Homeowners do not have to own their homes outright
  • Single-family homes, most condos, and many manufactured homes qualify

The Basics

Like traditional mortgages, a reverse mortgage is a loan on a property you currently own, but with a reverse mortgage there are no monthly mortgage payments to make. With a reverse mortgage, the monthly interest due is added to the reverse mortgage balance. Although the loan balance will rise over time, you will never owe more than the house value. A reverse mortgage will replace any existing mortgages on your house and convert a portion of your remaining home equity into cash. The reverse mortgage is repaid when you sell your property, move, or pass away. Reverse mortgages are only available to homeowners aged 62+ with sufficient equity in their properties. The proceeds from a reverse mortgage can be used however you choose – there are no restrictions.

Unique features of a reverse mortgage:

  • Borrowers continue to live in their home.
  • Borrowers own and hold title to their home; the reverse mortgage lender does not own the property.
  • Monthly mortgage loan payments are eliminated.
  • The loan is due and must be repaid when the last surviving borrower sells the property, moves, or passes away or if the borrower fails to pay the property taxes and homeowners insurance or to adequately maintain the property.
  • The loan amount can never exceed the value of the home when the loan becomes due.

Loan Amounts

Your home is the collateral for a reverse mortgage. The amount of money you can obtain in a reverse mortgage depends on these factors:

  • The age of the youngest borrower
  • The current market value of your home
  • The amount of equity you have in your home
  • The current interest rate

The older you are and the higher the market value of your home, the more money you can obtain with a reverse mortgage. With an FHA HECM reverse mortgage, the maximum lending limit of $625,500 may apply. A private reverse mortgage product may offer a higher loan amount.

Call 1-888-235-6414 for a no-obligation consultation to review your current situation with a reverse mortgage specialist at Equity Home Loan Solutions (EHLS).

Loan Proceeds

If you have an existing mortgage or home equity line of credit, they will be paid off when your reverse mortgage is funded. The balance of your loan proceeds will be distributed to you based on the option you choose.

If you choose a fixed rate reverse mortgage, the remaining proceeds will be distributed to you in a single, lump sum.

If you choose a variable interest rate reverse mortgage, you have a choice of distributions:

  • Single, lump sum
  • Flexible reserve credit line, available to you at times and in amounts of your choosing
  • Equal monthly cash payments for a fixed period or for life
  • A combination of these distributions

Borrower Responsibility

When you get an FHA HECM reverse mortgage, you still own your home and have a responsibility for its upkeep and maintenance. You are also responsible for paying ongoing homeowners insurance and property taxes on your home.

Repaying a Reverse Mortgage

Reverse mortgages must be paid back when the last surviving borrower sells the house, moves, or passes away or if the borrower fails to pay the property taxes and homeowners insurance or to adequately maintain the property.

  • The maximum amount that will be owed is the current market value of the house, even if the money you have received and accrued interest on the reverse mortgage exceeds your home value at the time the loan is due. This protection is guaranteed by the Federal Housing Administration. Any remaining equity after paying off the reverse mortgage will go to you or your heirs.
  • If your heirs want to keep the house in the family after you pass away, they may do so by paying off the reverse mortgage with a traditional refinance or by using other available sources of cash.
  • If your heirs opt to sell the home to pay the balance of the reverse mortgage loan, any proceeds of the sale that exceed the reverse mortgage loan balance due will be theirs to keep.

How a Reverse Mortgage Compares

  • Traditional mortgage refinance:
    • Positive: Refinancing your existing mortgage may lower your monthly payments, or allow you to pay off your mortgage faster, or receive cash out of the equity in your property.
    • Negative: Eligibility is based on both income and credit, and monthly mortgage payments must be made for the life of the loan.
  • Home equity loan or line of credit:
    • Positive: Tap the equity in your home in a lump sum or a line of credit.
    • Negative: Eligibility is based on both income and credit, monthly mortgage payments must be made for the life of the loan, and typically involve higher interest rates and costs.
  • Personal loan:
    • Positive: Personal loans can be funded very quickly and collateral may not be required.
    • Negative: Typically have much higher interest rates than other types of financing options, with no consumer safeguards, and monthly payments must be made for the life of the loan.

What’s your situation?

It’s easier to decide if a reverse mortgage is right for you when you’re well informed. Call 1-888-235-6414 today for a no-obligation consultation with an EHLS reverse mortgage specialist who can answer all your questions about your particular situation.

When you call EHLS, experience answers. 1-888-235-6414