Reverse Mortgages

The Reverse Mortgage is one of the most misunderstood loan programs in todays marketplace. In reality it is not that different from most government insured mortgage products;
  • The bank, mortgage company or lending institution makes a loan that is secured/collateralized by a residence.
  • The maximum amount of the loan will be a percentage of the borrowers equity in the subject property.
  • Interest will accrue on the loan until it is paid back in full.
  • Mortgage Insurance, payable to the FHA, generally financed through the loan, is collected at closing.
  • A reverse mortgage can be used to refinance or purchase real property.
However, there are some notable differences- the biggest being that the borrower is not required to make any payments on the loan, ever. The loan does not have to be repaid unless:
  • All borrowers on the loan have passed away or;
  • The house is sold (assuming one of the borrowers are still alive) or;
  • The house is being refinanced.

The general idea is that a person- minimum age 62- can access the equity in their home without needing to meet income or credit requirements. One obvious benefit is that it may enable them to stay in their home while giving them funds to help with living expenses, or any other expenses that they no longer have the ability to cover with savings or income. Once they are deceased, their heirs are responsible to pay back the loan proceeds plus interest. If there is equity remaining beyond the balance due, as long as they can pay off the loan (either through sale of the house, refinance- assuming they qualify- or with available cash), it passes to the rightful heirs. If the value of the house does NOT cover the loan balance plus interest, and the heirs cannot pay off the balance, the lender can take the house but the heirs will not be responsible for the difference. Under normal circumstances the bank cannot seek recompense beyond the acquisition of the collateral, which is very different from most other mortgage programs. To be eligible for a FHA HECM (Home Equity Conversion Mortgage), you must:
  • Be 62 years of age or older
  • Own the property outright or have considerable equity
  • Occupy the property as your principal residence
  • Not be delinquent on any federal debt
  • Participate in a consumer information session given by a HUD- approved HECM counselor

In its earlier incarnations, prior to being adapted to a Government insured product, it was possible for the borrower to be evicted to settle an outstanding reverse mortgage. There is still some unfounded residual suspicion surrounding this product, but it is a great option for certain borrowers depending on their circumstances. Not only it is closely underwritten and monitored to comply with government requirements, but it is absolutely required that every potential reverse mortgage borrower take an extensive government sponsored counseling course to make sure they have a complete understanding of this complex loan instrument prior to applying. There are several different options for accessing the funds, including:
  • Lump Sum
  • Monthly Disbursements
  • Credit Line
These options, along with the other relevant details, are reviewed in the counseling course. The HUD/FHA reverse mortgage website can be accessed HERE.

Please call or email Cornerstone Capital for more information or to locate a counseling option that is convenient for your situation.