Questions? Myths? All About Reverse Mortgages
Asking yourself “Why am I still paying a house payment?”
Here are some nswers to myths regarding a reverse mortgages; aalso know as Home Equity Conversion Mortgages
The times and programs have changed, so let’s get caught up.
Can the bank take my home?
No. There have been many reforms over the years to these loans and the one great factor you must consider is that this loan works just as any other mortgage. The bank cannot call the loan due unless you stop paying property taxes, homeowners insurance, you move out of the home as your primary residence or you pass away.
There are no monthly repayments with reverse mortgages. You pay back the loan when you move out of the home and it is sold or the loan is refinanced.
In most cases, reverse loans are paid off when the home is sold. If you choose to move and sell, you keep the equity remaining after costs to sell, NOT the bank.
If your heirs want to keep the home, they will need to refinance and pay off the loan to keep the property. Ample time is given from the bank to accomplish either scenario.
Will my heirs be liable for the loan after I pass away?
Again, no. Just like any mortgage, the mortgage remaining on the home must be paid off through a sale or a refinance of the loan into your heir’s names. Neither you nor your heirs will sign any documents that make them responsible for the loan in any way and that is where a trusted mortgage professional skilled in these type of loans will disclose all of the factors of the loan to you clearly.
So what happens if I owe more than the home’s value at the time of my death?
With this type of loan, you are paying a Mortgage Insurance Fee up front that can be up to 2% of the loan amount. It is something you can consider an “insurance” policy that protects you or your heirs from being responsible for any negative equity in the home when it is sold.
The fee is a requirement of HUD to insure the loan. The bank absorbs this difference if that is the case and your heirs are not responsible for the deficiency.
Now, let’s talk about how reverse mortgages really work.
Both standard and reverse mortgages use your home as collateral, and they differ in two ways:
Firstly, you receive money instead of paying out money to a lender every month.
Secondly, while standard mortgage amounts decrease over time, the amount of your reverse loan increases. They are like re-mortgaging your property or receiving an equity loan that you can have available to you when needed, a lump sum at the time the loan goes into place or you can chose to receive monthly payments. This new loan will pay off any existing liens and will be the only loan remaining secured by the property.
Reverse Mortgages are only available to people 62 years of age and older and can be used to purchase a home as well. This loan does allow younger spouses to qualify for the loan with you. The best part of these loans is that it does not need to be repaid until you vacate the home. The money received can be used for home improvements and supplemental income, which makes the loan very beneficial.
How much money can I really get — that’s the question we are always asked, right?
The amount of your loan depends on many factors, including your age and the home’s appraised value.
Suzanne Voter is a longtime Nevada County resident and Reverse Mortgage Specialist. Her column will appear in TWI from time to time in the future.
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