REVERSE MORTGAGE PRIMER
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| For many people approaching
retirement age that means they may be "equity rich" and
"cash poor" at the same time. It is not unusual today to
find people living in $1 million homes almost entirely
dependent on social security just to get by. |
A reverse mortgage is still a loan with your house as the
collateral, but it is entirely different from the kind of
mortgage you got when you bought your first house. These are
the major differences:
The Lender Pays You - Your Monthly Mortgage Payment is
Zero
That's correct. You do not make a monthly payment with a
reverse mortgage. The lender pays you, and the loan can be
set up so that you can get paid in a lump sum, you can get
paid regular monthly amount, or you can get paid at the
times and in the amounts you request.
The terms of the loan determine what each of these
amounts would be. The primary determining factors are your
age, the value of your house, and the prevailing interest
rates at the time.
You Continue to Live in Your House - You Cannot Be Moved
Out
Staying in your house is really the whole purpose of reverse
mortgages when you get down to it. The twist is that instead
of paying somebody else to live there, you get paid while
you continue to live there.
You are actually required by the terms of the loan to
continue to live in the house as your principal residence.
You can spend any amount of time visiting your children and
grandchildren, you can travel for pleasure, and you can
continue to spend summers at the lake so long as the house
remains your principal residence.
You Retain Ownership of Your House Until You Die Or Stop
Living There
A reverse mortgage is not a sale. You keep all the rights of
ownership that you had before the reverse mortgage loan. You
do not need the lender's permission to paint the house a
different color or to remodel. You can put your house on the
market and sell it to the highest bidder. You can will it to
your children.
If there is a change in ownership, such as by sale or
through the death of the last surviving owner, the reverse
mortgage will have to be paid off at that time. The lender
would be entitled to receive from the proceeds of the sale
only the amount you actually received from the lender plus
all accrued and unpaid interest to date. Any amount
remaining after paying off the reverse mortgage lender would
go to you, to your surviving spouse, or to your estate.
The Principal Amount of the Loan Increases When You Get
Money
Another way of saying this is that you control the amount
that must eventually be paid back by controlling the amount
of money you actually get from the lender. A reverse
mortgage is still a loan, and the money plus interest has to
be paid back at some time, usually from the sale of the
house after you and your spouse no longer live there.
Because the principal amount of a reverse mortgage cannot be
determined until after you no longer live at the property,
neither can the maturity date of the loan. This can a
difficult concept to wrap your mind around because it is so
different from conventional mortgages.
You Can Never Owe More Than the Value of Your House
This is true for the two reverse mortgage products sponsored
by the Federal government (HECM and Home Keepers) although
it may not be true for privately created reverse mortgage
programs.
The benefit of the Federal programs is that you, your
surviving spouse, or your estate, can never owe more than
the loan balance or the value of your house, whichever is
less. Your reverse mortgage lender cannot require repayment
from you, your surviving spouse, or your heirs, or from any
asset other than your house.
Get started on a
reverse mortgage today.
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