11:16 pm Dawn Swinson
A Reverse Mortgage is a loan for senior homeowners that is secured by the equity in their primary
residence . The loan generally does not have to be repaid until the last
surviving homeowner permanently moves out of the property or passes away. At
that time, the estate has approximately 6 months to repay the balance of the
reverse mortgage or sell the home to pay off the balance. Any remaining equity
is inherited by the estate. The estate is not personally liable if the home
sells for less than the balance of the Reverse Mortgage.
for a Reverse Mortgage
To be eligible for a HECM Reverse Mortgage, the Federal
Housing Administration (FHA) requires that all borrowers be at least age 62.
The home must be owned free and clear or all existing liens must be satisfied
with proceeds from the reverse mortgage. If there is an existing mortgage
balance, it can be paid off completely with the proceeds of the reverse
mortgage loan at closing. Generally there are no credit score
requirements for a reverse mortgage.
the Reverse Mortgage
Generally speaking, a reverse mortgage loan cannot be
outlived and will not become due, as long as at least one homeowner lives in
the home as their primary residence, continues to pay required property taxes
and homeowners insurance and maintains the home in accordance with FHA
In the event of death or in the event that the home
ceases to be the primary residence for more than 12 months, the homeowner’s
estate can choose to repay the reverse mortgage loan or put the home up for
If the equity in the home is higher than the balance of
the loan when the home is sold to repay the loan, the remaining equity belongs
to the estate.
If the sale of the home is not enough to pay off the
reverse mortgage, the lender must take a loss and request reimbursement from
the FHA. No other assets are affected by a reverse mortgage. For example,
investments, second homes, cars, and other valuable possessions cannot be taken
from the estate to pay off the reverse mortgage.
The amount that is available generally depends on four
factors: age (older is better), current interest rate, appraised value of the
home and government imposed lending limits. Use the calculator to estimate how
much you could be eligible for.
of Money from a Reverse Mortgage
There are several ways to receive the proceeds from a
Lump sum – a lump sum of
cash at closing.
Tenure – equal monthly
payments as long as the homeowner lives in the home.
Term – equal monthly
payments for a fixed number of years.
Line of Credit – draw any
amount at any time until the line of credit is exhausted.
Any combination of those
Difference Between a Reverse Mortgage and a Home Equity
Generally a home equity loan, a second mortgage, or a
home equity line of credit (HELOC) have strict requirements for income and
creditworthiness. Also, with other traditional loans the homeowner must still
make monthly payments to repay the loans. A reverse mortgage generally has no
credit score requirements and instead of making monthly mortgage
payments, the homeowner receives cash from the lender.
With a reverse mortgage the amount that can be borrowed
is determined by an FHA formula that considers age, the current interest rate,
and the appraised value of the home. Typically, the more valuable the home,
the higher the loan amount will be, subject to lending limits.
To summarize the key differences, with traditional loans
the homeowner is still required to make monthly payments, but with a reverse
mortgage the loan is typically not due as long as the homeowner lives in the
home as their primary residence and continues to meet all loan obligations.
With a reverse mortgage no monthly mortgage payments are required; however, the
homeowner is still responsible for property taxes, insurance, and maintenance.