What is a reverse mortgage and how does a reverse mortgage work?

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Designed for seniors, a reverse mortgage is a loan that allows the homeowner to convert some of the equity in their home into cash or monthly income, while retaining home ownership. A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM) is a relatively new product. A reverse mortgage provides unique benefits for its target market eg: someone over 62 who lives in his/her primary residence, who has substantial equity in his/her home, and who has little or no income. A reverse mortgage is a loan against the equity in your home that you don't need to pay back for as long as you live in the home. Eligibility for a reverse mortgage is set by the Federal Government; The Federal Housing Authority FHA tells HECM lenders how much they can lend you, based on your age and your home's value.


The mortgagor is not required to make any payments, the home is owned by the bank upon the death of the mortgagor and the transaction is structured so that the loan amount will not exceed the value of the home at that time. That feature should raise a red flag. That means the homeowner isn't given the fair market value of the property initially because the bank must figure in the interest over the possible life of the loan.

Good credit is not relevant because the home provides the security for the loan. In some cases the heirs have the option to pay off the mortgage when the owner dies but the cost can be extremely high. This type of mortgage has higher up front fees than conventional mortgages and those costs become part of the original mortgage which accrues interest at a rapid rate. This is an important factor to consider because the mortgage must be paid in full if the owner decides to sell the property or if their heirs desire to keep it after their death. Especially troublesome is the fact that many reverse mortgage lenders will send a loan officer to the senior's home to sign the loan documents and the senior has no benefit of having another pair of eyes and ears present at the transaction.
To be eligible for a reverse mortgage, you need to be at least 62 years old, occupy the home as a primary residence, and either own your own home outright or only owe a small amount on your existing mortgage loan that can be paid off at closing with the proceeds from the reverse mortgage.

In general, a reverse mortgage is tax free and has no income restrictions. Additionally, most payments from a reverse mortgage won't affect Social Security or Medicare benefits. In fact, many seniors use a reverse mortgage to supplement their Social Security and Medicare, allowing for more financial security.

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.

In many states, the Reverse Mortgage, or Senior Reverse Mortgage, allows for a new home purchase with the use of reverse mortgage funds, this rule does not apply nationwide. Although HUD and the FHA recently passed the HECM Reverse Mortgage home purchase program, allowing you to purchase a new home with reverse mortgage proceeds, borrowers in Texas are not yet eligible. Rules in individual states may vary. Please see a specialist in your own state for more details.
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What is reverse mortgage and how does it work?

A reverse mortgage, also known as a Home Equity Conversion Mortgage(HECM) is a relatively new product. A reverse mortgage providesunique benefits for its target market: someon

How does a reverse mortgage purchase work?

Similar to a purchase with a regular mortgage. The difference is that you need a large enough down payment to qualify, and you won't ever have to make a mortgage payment on th

What is reversed mortgage?

Reverse Mortgage is a type of mortgage here in Canada where aninstitution can loan you the money on your paid off house upto acertain amount (usually 50%)of the price of your

Can a reverse mortgage be reversed?

From Talk Refinance: You do not have to repay this loan in your lifetime. Once your home is sold should you pass away the repayment will be taken from the proceeds of your ho

Can you get mortgage insurance on a reverse mortgage?

Insurance is already part of the reverse mortgage program paid to the FHA to insure your loan. The HECM standard products require 2% of the loan amount / lending limit finance

How does the mortgage balance get paid when you get a reverse mortgage?

Senior homeowners in US who have a lot of equity in their homes can qualify for these loans. Rather than making monthly mortgage payments to the lender, the homeowners can use

How can you get out of a reverse mortgage?

You can refinance out of a reverse mortgage at any time, there is no prepayment penalty. you can also sell whenever you want and move. Any equity remaining will be yours to ke

How does a reverse mortgage work when you die?

The lender gets the property when you die. If your heirs want tokeep the property then they must pay off the reverse mortgagewithin a certain time period after your death. How

Why are there 2 notes and mortgages in a reverse mortgage?

The first note belongs to the mortgage lender and the second to HUD. By doing this, other loan companies are prevented from attaching a 2nd lien to the home, because the secon

What is a reverse mortgage and how does it work?

In short, a reverse mortgage is a mortgage that does not require any mortgage payments to be made, and the funds received from the loan can be received via a lump sum of money

Does a reverse mortgage work for a government loan?

To get a reverse mortgage, ALL of the following must be true: * The borrower is 62 years old or older * The borrower owns their home outright - No mortgages associated w

How does a reverse mortgage calculator work?

A reverse mortgage is a program for seniors backed by the Federal Housing Administration that enables them to access the equity of their home without repayment. The mortgage c

What is a reverse mortgage for?

A reverse mortgage is for helping older people who might need money. A reverse mortgage is a type of loan for people over the age of 62 who are home owners and they can use th