What is a Reverse Mortgage… in Plain English


This may sound very complicated, however, In plain English, a reverse mortgage is nothing more than an equity loan secured by your home which is designed to defer the mortgage interest. It’s as simple as that.

Let me emphasize that Source: Reverse Mortgage Roadmap does not include neither trading of your own house nor free money given by the government for any entitlement program.

A product created by The Federal Housing Administration on 1989 is the most commonly used, it is called the HECM or Home Equity Conversion Mortgage. This procedure is favorable to the homeowner, for as long as the homeowner resides in the property and dutifully pays the property tax as well as the insurance, homeowner is not obligated to make monthly amortization for loan and the reverse mortgage interest takes due upon loan maturity (30 years). In contrast to the traditional mortgaging practice wherein the homeowner is required to pay on monthly basis over a specific period.

You Own Your Home

Just like any other mortgage, a monthly statement will be forwarded to the homeowner presenting breakdown of all the interest charges and balance information. However, the difference in using the reverse mortgage is the absence of the payment coupon for no payment is needed and still ownership of the property continues as long as the property taxes and insurance are paid by the homeowner.

What Are The Qualifications?

All US Citizens and Permanent Residents age 62 or older with substantial equity in their home are qualified to avail the reverse mortgages. No income requirement is needed for monthly payment is not necessary. Only continuous residency and continuous payment of property taxes and insurance are required. To have an idea as to the maximum loanable amount you can avail, it will be based on the youngest homeowner’s age, current rates and home values (visit our calculator to estimate your loan).

You’re In the Driver’s Seat

You may have several options to choose from, partial or full payment of interest without penalty, or deduct interest from the entire loan and pay off the balance. This clarifies the notion of entering into reverse mortgage transaction will leave heirs with nothing but debt is wrong for nobody can predict your home appreciation.

How is the Loan Repaid?

Aside from voluntary full payment of the loan, the reverse mortgage only holds due upon the death of the last surviving borrower or non-occupancy of the property as primary residence of the borrower. Grace period (12 months) will be given to the heirs to decide whether to complete a sale or refinance the transaction for the payment of the balance. The lender will be force to foreclose the property if and when the heirs show no interest in settling the account. In the event that the sale proceeds is not enough to fully pay the outstanding, the government insurance paid for closing of the loan will cover the estate and Mortgage Insurance Fund handles the reimbursement of lender’s deficit.

 

Who Is It For?

The reverse mortgage perfectly fits to achievers who dream of owning and living in the house where they love to retire.

Who Is It NOT For?

This applies to people with no intention of living in a place for good or for a long period of time.

What about Taxes?

No tax will be impose to any cash proceeds from mortgage for it is not considered as income.

Required Counselling

Before undergoing into any reverse mortgage transaction, Source: Reverse.Mortgage will be happy to assist you for the Federal Housing Administration requires all applicants to have an independent 3rd party counselling by phone or in person to fully understand the process. Upon counselling completion, a signed certificate will be delivered to your chosen lender (view a list of approved counselors).

Other Considerations

Be reminded that reverse mortgages have no effect on the benefits being enjoyed by a citizen such as, Social Security, and Medicare, and the cash proceeds for those who are in “needs based” state. Before entering to any mortgage transaction, it is advisable to compare details and views from different sectors. The phrases like “they are all the same” or “we service our own loans” are often heard. The fact is ALL reverse mortgages carry the same protection and the bottom line is, here is HECM, the only one Federal insured, do not settle for less money and higher interest charges.

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