Losing a home with a reverse mortgage is possible but highly unlikely if following a few basic rules. Taxes and homeowner insurance are required.
A reverse mortgage offers significant advantages for homeowners who need access to home equity. In a few situations, disadvantages make this type of loan less than ideal. In either case, homeowners should evaluate the overall benefits of non-recourse loans before applying.
Reverse Mortgage Basics
A reverse mortgage is a non-recourse loan. This type of loan operates differently than conventional home loans. The advantage is that homeowners are not personally liable for loan repayment. In addition, payments are not required so long as a homeowner follows a few basic requirements. The disadvantage of a reverse mortgage is that home equity decreases each month as interest accrues. Further, many homeowners use these types of loans to draw on a line of credit. Each time credit is used, the principal balance of the loan increases. Further, increased principal creates a corresponding increase interest charges. Homeowners who own substantial home equity are the best candidates for qualifying and using these loans effectively.
Why Homes are Lost
The basic requirements to maintain a reverse mortgage in good standing relate to ordinary maintenance already performed by most homeowners. All taxes must remain paid and current. Homeowners must provide hazard insurance to cover unexpected losses. Regular home maintenance is necessary to keep a home in good repair and maintain collateral value. In most conventional loan situations, taxes and insurance are included in the regular monthly payment. Reverse mortgages do not require regular monthly payments so arrangements are necessary to make sure these items are paid.
Repayment
Non-recourse loans are repaid when the last surviving occupant vacates the home. If the balance of the loan is greater than home value, owners may surrender collateral in full satisfaction of the debt without personal liability.
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