Reverse Mortgages Made Simple

When I was in the mortgage business there was one division that no one really new much about except the only two people in the group. We all had our own ideas but no one knew the truth about Reverse Mortgages.

What is a Reverse Mortgage? A reverse mortgage is a low interest loan for seniors that uses the homes equity as collateral. The loan amount is a percentage of the homes value determined by the age of the youngest homeowner.

So when does it have to be repaid? The loan does not have to be repaid until the last surviving homeowner either moves out permanently or passes away. At that point the estate has twelve months to repay the mortgage or sell the home to do so. The estate is not liable if the home does not sell for high enough to cover the amount owed. Any remaining equity is given to the estate.

Am I eligible? To be eligible for a HUD reverse mortgage the FHA (Federal Housing Administration) requires the homeowner be at least sixty-two years of age and the must be free and clear or have a loan balance that is not more than sixty-five percent of the homes value.

What types of homes are eligible? Most any type of home is eligible, including mobile homes built within the last thirty years. The mobile home must be on a permanent foundation and the owner must also own the land it rests on.

What is the difference between a Home Equity Line of Credit and a Reverse Mortgage? A HELOC has a strict guidelines for income and creditworthiness, and the homeowner must make monthly payments on the loan. A reverse mortgage has no credit requirements and no monthly payments are required. Instead the homeowner receives monthly checks.

The older the homeowner the lower the interest rate, and the more valuable the home the higher the loan amount will be. Unlike a traditional loan the reverse mortgage does not ever come due as long as the homeowner lives. A reverse mortgage cannot be outlived and one can never owe more than the value of the home. You will never be upside down in your mortgage.

Estate Inheritance: In the event of death, or the event that the home is no longer the owners primary residence the owner can convert the loan into a traditional loan to keep the home. Any remaining equity belongs to the heirs.

What about the loan limit? Loan size is determined by three factors; age, current interest rate and appraised value of the home.

Money distribution:

• Lump sum at closing

• Equal monthly payments as long as the homeowner lives in the home

• Equal monthly payments for a fixed term

• Line of credit. Homeowner can withdraw out any amount until the sum is exhausted.

You also have the option to mix and match the above choices.

So there you have it. Reverse mortgages made simple. Call your mortgage specialist and have them run some numbers to see if you are eligible. I would try to talk to a specialist in this field because may mortgage professionals do not do them and may not be able to assist you.