What is a reverse mortgage loan?
A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older.
This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loans.
A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow money using their home as security for the loan. Also like a traditional mortgage, when you take out a reverse mortgage loan, the title to your home remains in your name. However, unlike a traditional mortgage, with a reverse mortgage loan, borrowers don’t make monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month and the balance grows. With a reverse mortgage loan, homeowners are required to pay property taxes and homeowners insurance, use the property as their principal residence, and keep their house in good condition.
How does a reverse mortgage get paid back?
With a reverse mortgage loan, the amount the homeowner owes to the lender goes up–not down–over time. This is because interest and fees are added to the loan balance each month. As your loan balance increases, your home equity decreases.
A reverse mortgage loan is not free money. It is a loan where borrowed money + interest + fees each month = rising loan balance. The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home.
Can anyone take out a reverse mortgage loan?
No. Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage loan, are a special type of home loan available only to homeowners who are 62 and older.
A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you want. The loan and interest are repaid only when you sell your home, permanently move away, or die.
Age is one requirement for a HECM. The other requirements include:
- Your home must be your principal residence, meaning you live there the majority of the year.
- You must either own your home outright or have a low mortgage balance. Owning your home outright means you do not have a mortgage on it anymore. If you have a mortgage balance, you must be able to pay it off when you close on the reverse mortgage. You can use your own funds or money from the reverse mortgage to pay off your existing mortgage balance.
- You cannot owe any federal debt, such as federal income taxes or federal student loans. You may, however, use money from the reverse mortgage loan to pay off this debt.
- You must have enough of your own money or agree to set aside part of the reverse mortgage funds at your loan closing to pay ongoing property charges, including taxes and insurance, as well as maintenance and repair costs.
- Your home must be in good shape. If your house does not meet the required property standards, the lender will tell you what repairs need to be made before you can get a reverse mortgage loan.
- You must receive counseling from a HUD-approved reverse mortgage counseling agency to discuss your eligibility, the financial implications of the loan, and other alternatives.
Questions? Call me at 208 661-9457 or email cmfisher@modusmortgage.com and I’d be happy to talk with you.