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What is a Reverse Mortgage?
A Reverse Mortgage is a federally regulated program for homeowners, aged 62 and older. It allows the equity in your home to pay you rather than you paying for the home.
What is a Government Insured HECM program?
HECM stands for Home Equity Conversion Mortgage. It is a federally insured and guaranteed program. The HECM is a safe way for you to access the equity in your home without ever making a mortgage payment.
How is this Program “safe” for Senior Homeowners?
No matter what happens in the economy, how much money you receive, or how long you live in your home you will never be required to make a mortgage payment. In addition, no matter what happens to your lender or your home’s value you have guaranteed access to your money.
Who owns the home if I take a Reverse Mortgage?
You own the home. However, you pledge the home as collateral.
What happens if, in the future, the Loan exceeds the Value of the Home?
Your Reverse Mortgage will continue – thanks to the federal insurance. The line of credit will still be available and monthly disbursements you may have set up, will still be sent to you.
How are Reverse Mortgages different today?
Today’s reverse mortgages are highly regulated by State and Federal laws to make them safe and to protect you. Among others, the following regulations apply:
- You retain title of the home.
- No equity share is allowed, meaning the lender does not slowly take over your home.
- Fees and costs are federally regulated.
How does a Reverse Mortgage compare to a Conventional Mortgage?
In a conventional forward mortgage, you make monthly payments to the bank eventually paying off the mortgage over time. With a reverse mortgage you receive cash from your lender, as lump sum upfront, as monthly installments or as a line of credit that grows over time. As long as you live in your home you never have to pay off a single dollar of the loan.
What restrictions apply to the cash I receive from a Reverse Mortgage?
It is your money and you can use it the way you want. It’s non-taxable and does not affect Social Security payments. We do recommend that you talk to a competent financial advisor to determine the effect on any other benefits you may be receiving.
When does a Reverse Mortgage become due and what happens then?
When you no longer live in your home or when you pass away, the reverse mortgage becomes due. You or your heirs have two options:
1) Pay off the reverse mortgage including the accrued interest and retain ownership.
2) Give up ownership of the home and receive the difference between the net sales
proceeds and the loan balance. You will not be liable for any shortfall if the sales proceeds do not cover the loan.
Your loan may also become due and payable if you do not continue meeting the
terms of the loan (For example, paying taxes and insurance owed on the property.)
What are my obligations under a Reverse Mortgage?
With a Reverse Mortgage you retain title to your home. This means that you also have all your obligations as a home owner. You are responsible for home owner taxes and insurances.
You May Choose How You Want to Receive the Proceeds
You can decide how you want to receive the proceeds from the Reverse Mortgage:
1. Lump Sum Cash at Closing
2. Line of Credit
3. Monthly Cash Proceeds for Life
4. Or a combination of the three
The following pie graph illustrates a sample of the Reverse Mortgage and also gives an overview
over fees, costs and reserves. Feel free to ask me to calculate for you another scenario.
Example Home Value: $225,000
The total pie represents your home against which you borrow.
Does the lender take title to my property?
No, you retain the same ownership and title that you have today. The lender puts a lien on the property, just as they would with a regular forward mortgage, which is paid off when you sell your property, or when you pass and your heirs inherit and they can pay off the
loan with another loan or other funds.
When does the Reverse Mortgage need to be paid off?
When you sell the property or no longer occupy your home as your primary residence for a period of 12 months or longer.
What does the lender expect from me?
You must maintain the property in reasonably good condition. You must pay the property taxes and the homeowners insurance and any homeowner’s association dues you may have. And of course, the lender expects you to continue to occupy the property.
I currently hold title in a Trust, can I keep it that way?
Yes you can but the lender and title company do require that they review the trust and it must be approved. If you hold title in a trust you should let your Loan Officer know up front so he/she can get a copy of the trust and have it reviewed immediately so that there are no surprises later. Most trusts are prepared with lenders and their requirements in mind so they are not a problem but it is best to know as early on as possible!
Will my heirs still receive an inheritance?
Yes, after the balance of your reverse mortgage is paid off, all remaining equity will go to your heirs. One of the forms we provide you with before you close your loan is an amortization schedule so you will always know the principal balance of your loan, year by year. How much equity will remain will depend on such variables as how much money you draw, how long you stay in your home, home appreciation, your home experiences, and interest rates (if you have a variable interest rate loan).
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