Reverse mortgages are similar to a home equity loan in that they permit a homeowner to withdraw home equity. One significant difference is that there are no monthly debt payments with a reverse mortgage.
How It Works
Upon meeting certain restrictions, homeowners over age 62 can tap into their home’s equity provided it is, and continues to be, the homeowner’s principal residence. The homeowner will need to have equity in the qualifying single family home, town home, or condominium (some mobile homes also may qualify). If there is an outstanding mortgage, typically the funds from the reverse mortgage would first have to be used to pay off the existing loan. There are caps on the amount of money that a homeowner can receive and depend on a number of factors including current interest rates, location of property, value of the home, and age of owner(s). There are options to receive the loan money including a lump-sum payment or a fixed payment over time, among others.
Who Owns the Property
When considering a reverse mortgage, a frequent question asked is, “Does the reverse mortgage lender own my home?” The short answer, is no. The homeowner retains title, but like a regular mortgage, the lender now has an interest in the property and upon a transfer of title, the outstanding debt will have to be satisfied. It is important to understand when payment might be due because there are situations that trigger all of the loan moneys being due. For example, the homeowner is generally required to continue living in the home, timely pay real estate taxes, maintain homeowner insurance, and keep the property in good repair. If a homeowner fails to meet the requirements, a lender can typically call the loan due in full.
Additional Information
The most common type of reverse mortgages is a Home Equity Conversion Mortgage that is insured by the United States Federal Government. These mortgages are available through Federal Housing Administration approved lenders. Visit the U.S. Housing and Urban Development’s website (www.hud.gov) for more information and to locate lenders that can assist you with locating a program for which the answer is “no” to the question, “Does the reverse mortgage lender own my home?”
Related posts: