How does a reverse mortgage work?

How does a reverse mortgage work?


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What Is A Reverse Mortgage? - How Does A Reverse Mortgage Work?


How A Reverse Mortgage Works

At Senior Equity Financial, helping customers understand how reverse mortgages work is one of our first priorities. We have found that one of the best ways to do this is to compare reverse mortgages to a traditional or “forward mortgage.”

A Forward Mortgage: you pay the bank
When you bought your home originally, you probably obtained a mortgage from a bank. As you made your mortgage payments each month, the amount you owed on your home got smaller, and the equity you owned in your home got larger. You paid the bank monthly with a forward mortgage.

A reverse mortgage: the bank pays you
With a reverse mortgage the bank pays you. You receive a percentage of the value of your home, which you can borrow in many ways. You also make no repayments — and pay none of the interest that is accruing on your debt — until the home is no longer your primary residence. Like a traditional mortgage, you are still responsible for your real estate taxes and homeowner’s insurance.

Type of reverse mortgages:

Federally Insured Home Equity Conversion Mortgages (HECM)
HECMs were the first regulated programs on the market. Today, they are the most popular reverse mortgages, accounting for an estimated 90 percent of the total market. Available since 1989, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development.

Jumbo Reverse Mortgages
Jumbo Reverse Mortgages, or what some call Proprietary Reverse Mortgages, were developed to address unmet needs that could not be served by the HECM reverse mortgage, specifically for individuals with higher property values. Jumbo Reverse Mortgages are not insured by the federal government, but feature many of the important consumer protections and benefits of the government programs, including mandatory counseling.

Paying back a reverse mortgage
A loan that you never have to pay back? It may sound too good to be true, but here’s how it works: there are three circumstances under which your reverse mortgage must be paid back:

  • You and any other borrower have passed away
  • You and any other borrower have not lived in the home for 12 consecutive months
  • You decide to sell your home.

When any of these events occur, the loan will become due. This will include the monies you borrowed, interest, and closing costs. The loan is typically paid back through the sale of the home or through other proceeds if the heirs would like to keep the home. Remember, this is a non-recourse loan which means the amount you or your heirs repay will not exceed the value of your home at the time when it is sold.

If you are interested in learning more about reverse mortgages, Senior Equity Financial has the experience to help you understand the options and find the reverse mortgage that’s specifically tailored to fit your financial needs.

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For seniors, there is a relatively new mortgage available called a reverse mortgage. This type of mortgage is useful for people who have a large equity in their home, but who live on a fixed budget and find it difficult to live on their current income. Many seniors in this situation are forced to sell their homes. Instead of selling your home, a reverse mortgage pays the home owner a fixed amount each month while they own the home, with the mortgage amount thus increasing each month for the amount of the payment, plus interest. There are several types of reverse mortgage products, one of which, the Home Equity Conversion Mortgage which is used by 90% of reverse mortgage borrowers, is federally insured. All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. (Typically, a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.)  For those homeowners who are sophisticated, they can effectively accomplish the same thing by obtaining a home equity line of credit, which is relatively inexpensive to obtain, and designing their own monthly draw program on their loan by utilizing a payment calculator using various assumptions about their age, home value etc.

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  According to the Yahoo! Finance Glossary, a reverse mortgage allows homeowners who are 62 or older to borrow against their home's equity. The homeowner can theoretically borrow until the principal and interest of the loan reaches the amount of the home equity.

As this excellent introductory articleby Alan Kopit points out, a reverse mortgage is often a good option for an elderly person who is house-rich but cash-poor. While their house may have accrued significant equity, they may have trouble with living expenses. This loan gives them access to the cash they need.

In a reverse mortgage, a borrower doesn't have to repay until they sell their home, move out permanently, or die. If a borrower dies, the heirs are then responsible for the loan. This is usually paid off by selling the home or by refinancing into a traditional mortgage.

This is obviously a unique loan intended for very specific circumstances. It's probably not a good idea for an elderly homeowner who wants to bequeath a home free and clear. But financial necessities may make it a viable option for someone looking to make their sunset years a little more liquid.

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Reverse mortgages also work in a purchase transaction. You can purchase a home without making a single monthly mortgage payment. This option allows seniors to move close to family when the need arises. There are various ways seniors can benefit with a reverse mortgage including receiving additional tax-free monthly income or a lump sum payment, cancelling a current mortgage payment, funding long term care insurance and in-home care, renovations and repair work to their homes.

A Reverse Mortgage is a mortgage option that allows homeowners to use the equity in their home as a loan that they do not have to repay for as long as they own the home.

Typically the Reverse Mortgage loan only becomes due when the borrower sells their home or passes away. If a person who has a reverse mortgage passes away, the home is sold to pay off the loan and cannot be transferred to family member or heirs.

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Steve Avrus from Avrus Financial & Mortgage Services, Inc. in Boca Raton Fl answers that a reverse mortgage is a mortgage loan to seniors at lease 62 yrs of age.  The amount is based on the age and value of the property. There are never any payments required as long as the borrowers remain living in the home as their primary residence.

If you check out , they should be able to help you. However, if that doesn't work, I would try talking to whoever handles your mortgage payments. However, I thought that American Patriot gave a great answer that you can hopefully use.

The reverse mortgage is a national program for homeowners age 62 and older, which enables you to access your home's equity without a monthly repayment.

The reverse mortgage is safe and is Government-Insured by the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD). A reverse mortgage allows seniors to access their home’s equity. Lenders pay the homeowner—and the homeowner has no payments due as long as he or she remains in the home


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Declining home values effect on a reverse mortgage.

If you already have a Reverse Mortgage, there is no effect from declining values. If you don't have one yet, you'll receive less cash benefit if the value declines.

Reverse mortgage tax question

The benefit of reverse mortgages is that they allow seniors to get extra tax free income. So, no, you will not have to pay taxes on the money you get from the reverse mortgage.

How to become a Reverse Mortgage Agent

Hi, Call me to discuss. Brian, Metlife - 754-234-9559

Do you have to own the house to get reverse mortgage?

>>Do you have to own the house to get reverse mortgage? The home must be the homeowners primary residence in order to get a Reverse Mortgage. >>who thinks that you can take out reverse mortgage with only 20 percent equity It's possible to do that, but the homeowner will need to contribute some ...