Reverse Mortgages

Reverse mortgages (also called home equity conversion loans) enable elderly homeowners to tap into their equity without selling their home. The lender pays you money based on the equity you've accrued in your home; you receive a lump sum, a monthly payment or a line of credit. Repayment is not necessary until the borrower sells the property, moves into a retirement community or passes away. When you sell your home or no longer use it as your primary residence, you or your estate must repay the cash you received from the reverse mortgage plus interest and other finance charges to the lender.

Reverse mortgages are ideal for homeowners who are retired or no longer working and need to supplement their income. Interest rates can be fixed or adjustable and the money is nontaxable and does not interfere with Social Security or Medicare benefits. Your lender cannot take property away if you outlive your loan nor can you be forced to sell your home to pay off your loan even if the loan balance grows to exceed property value.

What makes it a "reverse" mortgage?

A reverse mortgage is exactly what its name implies — a loan whose features make it essentially the reverse of a traditional "forward" mortgage. Instead of making monthly payments, you can choose to receive them. That’s the “reverse” part of a reverse mortgage. Instead of turning your income into equity, you turn your equity into income.

That last feature — the ability to turn your equity into income — is what most distinguishes a reverse mortgage from other loans, and it's what makes it so valuable to many senior homeowners. Having spent years repaying the mortgage that allowed you to buy your home, you can now tap into that investment to help you achieve your goals later in life. However you plan to use your equity — whether traveling, paying medical expenses, improving your home, or just adding a bit of cushion to your monthly budget — you'll have a golden opportunity to put your nest egg to good use.

What happens to my home?

Nothing happens to your home — you remain the owner for as long as you live there, and you cannot be forced to move. Unlike a traditional mortgage, however, your balance cannot exceed the value of your home when you sell it. So no matter how much money you receive through your reverse mortgage, you cannot owe more than your home is worth. Having that assurance is important. After all, you've put a lot of money into your home, and you should have control over how to take it out.

Who is eligible?

To be eligible for a reverse mortgage, all owners listed on the home's title must be at least 62 years of age and occupy the home as their principal residence for the majority of the year. The property must be a single-family or a two-to-four unit dwelling. Townhomes, detached homes, condominium units, planned unit developments (PUDs), and some manufactured homes are eligible.

Speaking with an approved reverse mortgage counselor is another important eligibility requirement. The Department of Housing and Urban Development (HUD) supervises counseling agencies that can work with you in person or, more commonly, over the phone. I will provide you with a list of authorized counselors.

Rising debt, falling equity

The monthly payments you made to pay off your original mortgage generally served a common purpose — to decrease your debt and increase your equity. The payments you receive with a reverse mortgage have exactly the opposite effect — they increase your debt and decrease your equity.

Why would I increase my debt?

Increasing your debt may not seem like a wise financial strategy at first—indeed, it isn't for everyone—but your reverse mortgage debt is different from most other kinds. Usually, taking out a loan means you must commit to repay it using money that you will earn in the future—in other words, using money that isn't guaranteed.

When you take out a reverse mortgage, the loan is based on the equity you already have in your home. That's because a reverse mortgage is what's known as a non-recourse loan, which means that your home is the lender's only recourse to collect on the debt. None of your other assets are affected.

You do not need to repay the loan as long as you or one of the borrowers continues to live in the house, keep the taxes and insurance current, and maintain the property. If you sell the home for more than the loan balance, you or your heirs will keep the difference.

How much can I borrow?

The maximum loan amount for a reverse mortgage is based primarily on three factors: the age of the youngest borrower, the value of the home, and the current interest rate. To estimate the amount you could receive from a reverse mortgage, give me a call today.