A reverse mortgage is a federally regulated program for homeowners age 62 and older. It allows the equity in a home to pay you rather than you paying for the home.
Officially named the Home Equity Conversion Mortgage, the reverse mortgage is a federally insured and guaranteed program.
No matter what happens in the economy, how much money you receive or how long you live in your home you are never required to make a mortgage payment, but you can if you choose to.
In addition, no matter what happens to your lender or your home’s value you have guaranteed access to your money.
One misconception is that the lender takes title. This is incorrect as the owner of the home retains title. You are securing the loan with the home as collateral just like a conventional mortgage, even if, in the future, the loan exceeds the value of the home, your reverse mortgage will continue—thanks to federal insurance.
Today’s reverse mortgages are highly regulated by state and federal laws to make them safe and to protect you.
In addition to retaining the title of the home, the following regulations apply: no equity share is allowed, meaning the lender does not take over your home; and fees and costs are federally regulated.
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 a lump sum—up front, as monthly installments or as a line of credit that grows over time.
As long as you live in your home you will never have to pay off a single dollar of the loan. It is your money and you can use it the way you want. It is nontaxable and does not affect Social Security payments.
I always recommend that homeowners talk to a competent financial advisor to determine the effect on any other benefits they may be receiving.
The reverse mortgage becomes due when you no longer live in your home or when you pass away.
You or your heirs have two options: pay off the reverse mortgage or sell the property and the difference between what you owe and what the property sells for is yours or your heirs. You will never be liable for any shortfall if the sale proceeds do not cover the loan.
The only thing the homeowner is responsible for with a reverse mortgage is the payment of the property taxes and insurance.
There are new products coming to the market that are not government insured that have all of the same qualities and protections as the HECM mortgage. The HomeSafe reverse mortgages are for high net- worth homes with larger loan amounts up to $4 million.
Whatever you think about the reverse mortgage, it pays to know the facts. You should work with a lender that is knowledgeable and has many products to choose from.
Nickeas is with Finance of America Mortgage.