Reverse Mortgages

What is a Reverse Mortgage?

A reverse mortgage is a special program for seniors. This program works well for seniors who are "house rich and cash poor."

With a traditional mortgage, you must start repaying the loan approximately 1 month after you receive the money and continue to pay every month until the loan is paid off.

With a reverse mortgage, there are no regular payments. The payment is to be made when the loan is due.

A. When the borrower dies.

B. When the borrower no longer lives in the home for 12 continuous months. Going to Florida for part of the year is acceptable.

C. Borrower violates loan terms. Examples: doesn't pay real estate taxes, doesn't pay homeowner's insurance.

This is a non recourse loan which means you are not personally liable for the debt. The lender can only get back the value of the house, which is why this type of loan usually has to be insured.

Requirements

1. All owners have to be 62 years old.

2. Homeowners- includes a 2-4 family home, condo or mobile home as long as you own the land.

3. Living in home as primary residence.

If you only have a life estate in your residence, you can still qualify. The life tenant signs the note and mortgage. The remainderman signs the mortgage and the good faith estimate.

Income is irrelevant for approval. Credit is not usually a problem unless there is an open bankruptcy or Federal debt, such as student loans or income taxes.

95% of all reverse mortgages are through the HUD program- where insurance insures both the lender and the client, called the Home Equity Conversion Mortgage (HECM).

There are limits to the amount of the mortgage you can take: either based on the fair market value of the home OR the county by county limit, whichever is lower.

The limit for Hampden, Hampshire and Franklin Counties is $207,860. The limit for Berkshire County is $200,160.

You can take the mortgage payout any of the following ways:

1. Lump sum- usually used to pay off other mortgages.

2. Line of credit.

3. Monthly payment- either for a fixed period or for as long as at least one of the borrowers lives there.

You can also have a combination of payments and you can change the type of payments later.

One drawback of reverse mortgages are the costs involved in getting the loan. You have fees and the cost of the mortgage insurance. However, these are financed as part of your loan.

Printer Friendly View
Add To Favorites
Send To A Friend