With all of the encouragement from celebrity spokespersons like Fred
Thompson, Robert Wagner and Henry Winkler, there is a growing awareness of
reverse mortgages. The fact is that our population is getting older and
more than 25 million homeowners meet the age requirement.
A reverse mortgage will allow homeowners age 62 or older currently living in
their home to tap into their equity. The amount available is determined by the
borrower’s age, the home’s current value and current interest rates. The
loan proceeds can be received in a single, lump-sum or periodic payments.
The closing costs can be paid in cash or rolled into the loan amount.
There are no payments on a reverse mortgage but the homeowner is still
responsible for property taxes, insurance, maintenance and other home costs.
When the borrower dies, moves or fails to fulfill the terms of the loan, the
lender is paid from the sale of the home. The borrower or their estate is
not responsible for more than the proceeds of the sale. However, if the
proceeds are greater than the amount owed to the lender, the remainder goes to
the homeowner or their heirs.
Unlike normal mortgage requirements, the borrower’s income and credit are not
used to determine the amount of the loan. The homeowner must occupy the
home as their principal residence and it must be free and clear of encumbrances
or have substantial equity.
Reverse mortgages are an opportunity to generate income or funds for capital
expenditures but they can pose risks to homeowners. HUD, the largest
insurer of reverse mortgages, is concerned about misleading or deceptive program
descriptions encouraging borrowers to obtain HUD reverse mortgages also known as
the HECM (Home Equity Conversion Mortgage). As of June 18, 2014, FHA will
only insure fixed rate reverse mortgages where the homeowner is limited to a
single, full draw made at closing.
A reverse mortgage, like any financial decision involving a home, is an
important decision that deserves careful consideration, due diligence and expert
advice.
For more information, check out The National Association of REALTORS®
Field Guide to Reverse Mortgages,
FAQs about HUD’s Reverse Mortgages and Reverse Mortgages –
Alternative Home
Equity Funding by Real Estate Center at Texas A & M.
