What is a Reverse Mortgage?

Rob Sandlin

Mortgage Originator

What is a Reverse Mortgage?

The Home Equity Conversion Mortgage (also known as the reverse mortgage) was created in 1989 to help older homeowners meet the financial demands of retirement and aging in their home. It is a mortgage loan based on your home’s value, the youngest borrower’s age and the current interest rate. What makes the HECM so unique is that it requires no monthly mortgage payments giving you access to funds without the financial burden during your retirement years. You retain title (ownership) to your home as long as you meet the basic requirements of the loan. The loan is ultimately repaid when you or the last surviving borrower (or non-borrowing spouse) pass away through the sale of the property or refinance by your heirs. 

Who is eligible?

Homeowners with at least one borrower 62 years of age on title to the home and with sufficient equity may be eligible. The home must be the primary residence. A borrower’s financial capacity and credit history are reviewed to insure the long­term success of your loan and ability to pay ongoing property taxes and homeowner’s insurance. 

Does my credit score affect my eligibility?

Your credit score is not the determining factor if you are eligible for a Home Equity Conversion Mortgage. An applicant’s overall credit history, income and existing financial obligations are considered to determine if a borrower has the financial capacity to meet the ongoing obligations of the loan. In some instances, a set-side of available funds may be required to meet future property obligations such as property taxes and insurance.

Reverse Mortgages are a bad idea?

For many years these types of mortgages have received negative publicity due to misconceptions. Many people wrongly believe that the home is no longer owned by the homeowner, this is not accurate, the home remains in the estate and can be sold to liquidate the remaining equity up the death of the last surviving owner. There are many safeguards in place including the non recourse feature that ensures the homeowner is not responsible to pay the difference if the loan balance ever exceeds the value of the home.

Will this affect my social security or medicare benefits?

The funds from the HECM loan generally do not affect a homeowners regular Social Security or Medicare benefits.

Reverse mortgage loans can be a viable option for homeowners who have built up equity in their homes or would like to purchase a new home with a substantial down payment. If can provide persons on a fixed income a reprieve from monthly payments or provide the borrowers a chance to utilize the equity in their home for improvements of other reason they deem necessary.

If you have specific questions regarding this or any other mortgage contact one of our professionals today.

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