What Is a Reverse Mortgage?
A reverse mortgage is a loan for senior homeowners that uses a portion of the home’s equity as collateral.
Eligibility for Reverse
To be eligible for a HECM reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62. The home must be owned free and clear or all existing liens but be able to be satisfied with the reverse mortgage. If there is a mortgage balance, it can be paid off completely with the proceeds of the reverse mortgage loan at the closing. Generally there are no income or credit score requirements for a reverse mortgage.
Outliving the reverse mortgage
A reverse mortgage can not be outlived. As long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current) the loan does will not become due.
Estate Inheritance
In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate can choose to repay the reverse mortgage or put the home up for sale.
If the equity in the home is higher than the balance of the loan, the remaining equity belongs to the estate.
If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA.No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage
Loan Limits
The amount that is available generally depends on four factors: age (older is better), current interest rate, appraised value of the home and government imposed lending limits. Use the calculator to estimate how much could be drawn.
Distribution of money from a reverse mortgage
There are several ways to receive the proceeds from a reverse mortgage.
•Lump sum – a lump sum of cash at closing.
•Tenure – equal monthly payments as long as the homeowner lives in the home.
•Term – equal monthly payments for a fixed number of years.
•Line of Credit – draw any amount at any time until the line of credit is exhausted.
•Any combination of those listed above
Maximum amount
With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. The more valuable the home (up to a certain point), the higher the loan amount will be, depending on lending limits.
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