Reverse Mortgage Basics
What is a HECM reverse mortgage?
A HECM reverse mortgage is a type of mortgage loan that is insured by the FHA (Federal Housing Administration) and is available only to homeowners aged 62 or older. It is different from all other types of mortgages because no payments are required and the loan does not become due for as long as the homeowner lives in the property, maintains it and pays the property taxes and insurance.
According to many surveys, reverse mortgages are most often used to pay off an existing mortgage or pay for medical and daily living expenses.
How are the proceeds distributed from a reverse mortgage?
The amount of money that a senior homeowner qualifies for is determined by three key factors: age, home value and current interest rates. A good rule of thumb is that a senior homeowner can qualify for 50 to 80 percent of their home’s value up to the $625,500 lending limit. The age of the senior homeowner, and the current market interest rates will determine where they will be in the 50 to 80 percent spectrum of money made available. First, all liens on title must be paid off from the proceeds. If a senior homeowner owes more than made available by the reverse mortgage the borrower must bring money to closing to pay down the liens. The rest of the money can be received in one of four ways
What are my responsibilities with a reverse mortgage?
As a senior homeowner with a reverse mortgage, there are a few rules that you have to abide by to keep the reverse mortgage in good standing.
Live in the home for at least six months out of the year
Pay your property taxes and homeowners insurance
Keep the house up to date with all the necessary repairs.
How is the interest calculated?
The interest is calculated on the entire outstanding loan balance of a reverse mortgage. Month after month the balance will increase by the accumulated interest, plus any monies lent to the homeowner. The homeowner can pay back any interest without penalty. The balance will continue to rise on a reverse mortgage for the duration of the loan. The homeowner will never owe more than what the home is worth. This is due, to the government insurance feature.
When does a reverse mortgage come due?
All of the borrowers have died.
All of the borrowers have sold or conveyed to the property.
The borrowers do not pay property taxes, hazard insurance or violate other obligations.
The borrowers permanently move to a new principal residence.
The borrowers, or the last borrower, fail to live in the home for twelve months in a row. An example of this situation would be if you (or the last borrower) were to have a twelve-month or longer stay in a nursing home.
The borrowers allow the property to deteriorate and do not make necessary repairs.
How is the loan paid back when it is due?
At closing a reverse mortgage lien is satisfied if a senior homeowner decides to sell the home. If the senior homeowner dies the property is sold by the estate. The bank gives the estate up to one year to pay back the reverse mortgage from the time of death. The reverse mortgage can be paid back by the estate either by refinancing the current reverse mortgage with a new mortgage or by selling the home.