reverse mortgage
A reverse mortgage (known as lifetime mortgage in the United Kingdom) is a loan available to seniors (62 and older in the United States), and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves ( e.g., into aged care). A reverse mortgage is analogous to an annuity where the principal and interest are paid with homeowner's equity.
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term ( e.g., 30 years) the mortgage has been paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the first and only mortgage on the property.
gotcha212
asked:
"I have found there is a TON of misunderstanding around reverse mortgages. 1. What do you think a reverse mortgage is? 2. How do you think it works? 3. Why do you think it is good/bad?You must answer all three to be considered for best answer."
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wizjp replied:
"Reverse mortgage is a funding option that gives senior citizens a payout now without a mortgage paymentReverse cashes out home value now; leaves repayment to estate, or by sale of home after death of lenderGood; instant cash with no repayment worryBad; estate loses house as an asset or has to repay mortgage."
What, what, what?? replied:
"A reverse mortgage is where you are effectively getting money on the equity of your home from a lender. You have to pay it back when you die, or the home becomes property of the lender.Yeah, it works. Its good if you need money and you don't want anyone to have your property when you die. Its good if you make a GOOD deal with the lender. The bad thing is, lenders don't make good deals. They are in it to make money, and when you die, they expect to get the money asap or the house and make a profit from it."
melissaw77 replied:
"1. Its when your house start to pay you, and when you die it becomes the property of the bank. There are different types though so this varies. 2. you apply for one of three types of reverse mortagage.If you want to make a home repair or improvement or need help paying your property taxes, you may want to find out if you qualify for any low-cost single-purpose loans that may be available in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit or call toll-free, 1-800-677-1116. Ask the AAA for information about available “loan programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs. If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD rules, and that many of the loan costs including the interest rate will be the same no matter which lender you select. Still, some costs including the origination fee, other closing costs, and servicing fees may vary among lenders. If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. But it generally will cost more. The best way to see key differences between a HECM and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits. Many HECM counselors and lenders can provide you with this important information. No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse mortgage, including all itemized costs. 3.Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.As you consider a reverse mortgage, be aware that:Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender generally sets these fees and costs. The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases over time as loan funds are advanced to you and interest accrues on the loan. Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions. Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid. Because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property taxes or maintain homeowner’s insurance, you risk the loan becoming due and payable. Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole."
SmartA$$ replied:
"1. a reverse mortage is where the bank pays you each month instead of you paying them2. it works for people with lots of equity, say you owe $100,000 on your original loan, but since real estate has gone up, your house is worth $300,000, a reverse mortage pays you a bit of this equity each month. Your balance owed goes up with each payment, and interest acrews on the balance owed.3. it is only good for older people with lots of equity and no money, you can get a monthly check for living expenses but you are pissing away the money "Saved" in the equity in the house, when you die, there will be less equity that your children or other descendents can cash out. If you live long enough to work your balance up to the value of the house, you may be really screwed because the bank will stop giving you reverse mortgage payments and demand you start Making normal mortage payments."
GTB replied:
"Instead of paying the mortgage holder a payment each month and resulting in a lower balance owed to the mortgage holder, a reverse mortgage goes the other way. The balance owed increases each month and the mortgage holder issues a payment monthly to the property owner. The property owner usually has a fairly large equity in his home and he converts this into income over time and increases his balance owed. As with conventional mortgages, there are limits as to how much he can take out as income based upon equity, property value, and other factors taken into account common to any mortgage.It can be helpful to the elderly who need income and who have a high equity in their property and who have little to no other income sources. It does increase their amount owed so at some point the balance must be paid. Many elderly see this as a way to live for now and pass on less inheritance value to their heirs. The down side is that they can lose their home if they run out of equity and have no other income sources. Interest rates may be substantial with these. Some providers are not all that clear to the property owners about the home loss risk and the elderly may not understand all of what they are doing either (no matter how carefully someone explains it to them)."
Byron W replied:
"A reverse mortgage is a loan against the equity in your home. You can only get loaned about 50% of the amount of equity you have, depending on your age. The older, the more you can get. btw...must be 62 to get a reverse mortgage. No payments are due while you live in the home. Interest is accrued against you, and is deducted from the equity you have in your home. The loan (it is very much a loan) comes due when you die or otherwise permanently move out of your home.It is good and it is terrible. It is great...when it fits your situation. To learn more about that, visit below.(Good question)"
ttedua
asked:
"The reverse mortgage will be for my mother who is unable to manager her funds. How can I protect her funds and administer her monies safely? Is it possible to put restrictions on where and how much money is used?"
Question posted courtesy of:
tigerwren replied:
"You don't payback a reverse mortgage. The bank makes the monthly payment to you. Once it is paid off, the bank takes control and you move out. If she is unable to manage her funds, talk to a lawyer about having her declared incompetent (I forget the exact term) and you or an accountent would manage her money."
Byron W replied:
"Payback option - pay it off at death or permanent move. If you can pay it back earlier, you don't need a reverse mortgage. You need to form a trust with the proceeds of the reverse mortgage. The trust can say virtually anything your mother wants to say about how to administer and what restrictions. A trust attorney can do this relatively easily."
Adam & Kacie replied:
"You have three options to have money distributed on a reverse mortgage. The first is a lump sum. Second is monthly payments. Third is a combination. In terms of managing her funds, you would probably need to set up a power of attorney or guardianship.Be careful with a reverse mortgage. The money is not paid back until your mother moves out of her house or the house is sold. Reverse mortgages are expensive. On top of closing costs and points your lender may charge, there is also a 2% mortgage insurance premium rolled into the loan because this is a government backed mortgage. There is also an annual fee. The interest rates are high and are not fixed. When you run the numbers the reverse mortgage will use most of the equity in the house.You might want to look at refinancing and taking cash out. Putting the cash in the bank and making monthly payments can help to supplement income, will put your mother in a better financial position and give you more options in the future. I hope this helps."
jean666
asked:
"What happens to a reverse mortgage after the person have to go to nursing home. How does that work?"
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dogsngoat replied:
"It depends on the contract but usually the house goes to the mortgage company. Most contrcats state the hous ebelongs to the owner until they die or are no longer able to reside there.Check the contract."
George C replied:
"The money flows as long as someone is alive. I believe the mortgage company cannot take the home 'till death."
wizjp replied:
"In most cases, as soon as they vacate the home used as security, the loan must begin repayment.Talk to the lender"
titoalbanaples replied:
"Depends. If short term nursing care with expectation to return home nothing. If long term nursing without expectation then then the "reverse mortgage" which is in reality a loan is due to be paid off. Each contract will go into specifics as to what is short term verses longterm care."
ghouly05 replied:
"Generally, the loan ends when the homeowner dies, sells the house, or, depending on the loan conditions, moves out of the house for 12 consecutive months (for example, to go into an assisted living home or due to physical or mental illness the borrower is not able to live in the property on which the loan has been taken. At that point, the reverse mortgage can be paid off with the proceeds of the sale of the house, or if the borrower has died, the property can be refinanced by the heirs of the homeowner's estate with a regular mortgage. If the proceeds exceed the loan amount including compounded interest and fees, the owner of the house receives the difference. If the owner has died, the heirs receive the difference. For cases where the proceeds are not sufficient to pay off the loan, then the bank (or insurance which the bank has on the loan) absorbs the difference. So, in your scenario, it would depend on the loan conditions."
cider5564
asked:
"I know when one gets a reverse mortgage that the proceeds must first be used to pay off the existing mortgage and then the client gets to keep the difference. My question is if the proceeds of the reverse mortgage is not enough to pay of the existing mortgage but just some or most of it can a senior citizen still do it."
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lorijotx replied:
"From what I read online, they are already paid off and in a sense this is a new loan against the house with no payments. When the senior citizen passes away, the house is sold and the loan is paid off before any of the sale money goes to the estate."
Doctor Deth replied:
"if the reverse mortgage is not enough to pay off the existing mortgage then that person doesn't have enough equity in the house to do a reverse mortgage - you never get much money from a reverse mortgage"
cayeyana_pura
asked:
"What exactly is a reverse mortgage? Why don't people have to pay it back?"
Question posted courtesy of:
milaya replied:
"A reverse mortgage is a loan that allows people ages 62 and up to get the money they need for any expenses they may have. Unlike traditional mortgages, there are no monthly payments on a reverse mortgage. The reverse mortgage isn’t paid until the person who took out the mortgage moves, sells the home or passes away. At that time, the reverse mortgage is paid out of the proceeds of the home sale."
Dizzy_Lizzy replied:
"It’s for the elderly. Basically you get paid from the equity in your home. It’s not due until they pass away or sell the house. "
eyecue_two replied:
"It only works if you have a lot of equity in your house. The way it works is that you are selling the house to a mortgage company and they are making payments to you and allowing you to stay in it. This can be a good thing for senior citizens. The bad thing is that if you outlive the mortgage then you have to move out."
Sandy S replied:
"Others have given you a good description you can also research it further by using a search engine like Google. My only added comment is that not all Reverse Mortgages are created equally by a long shot.If you or elder parents are considering it and you do not understand lots of legal language then get an Atty to look over the documents. Please great care is needed!"
daeve930 replied:
"This is what I do. There are a couple misconceptions on other answers that I'd like to correct.This loan is for people aged 62 and over. It allows them to draw on some of the equity in their homes without having to make a mortgage payment for as long as they live in the house. When they permanently leave the home or sell it, the mortgage is due. Until that time, they pay their homeowner's insurance and real estate taxes but nothing to the lender. Credit and income, and naturally health, have no bearing on this loan. Those things will not determine eligibility or the rate of interest. The qualifications are that all owners are over the age of 62, there's enough equity, generally 50% but the older you are the less equity is required, and that the house is an allowable type. We can do it on 1 to 4 family homes, most condos, manufactured houses as long as they meet all the FHA requirements. We can't do it on mobile homes, and probably never will because they are personal property not real property. Right now we can't do co-ops, but the Housing Bill of 2008 will probably change that as well as the maximum value the FHA allows on the Home Equity Conversion Mortgage. That's the one most people will get. There may be some other changes from the new law. It was signed a couple weeks ago and HUD is determining the implementation now. Although I talk to people every day who tell me what the changes will be, the banks don't know yet and won't until HUD tells us.You do not sell your house to the lender. This is a mortgage. In England they have a Reverse Mortgage Scheme (they use the word scheme very differently outside the US...not with the negative connotation we give it) in which the lender does buy the home and the person lives there for as long as they want. But in the US, it's just a different type of mortgage. The loan amount will be based on the age of the youngest owner and the value of the home, as well as a couple other factors that are too involved to try to explain here. Someone who is 62 will get considerably less than someone who is 92.You cannot lose your home to foreclosure, because there are no payments to make as long as you live there. The mortgage will be called in the case of the death of the last borrower, non-payment of taxes or home owner's insurance, or if you let the place deteriorate, although we don't have any mortgage police checking up on you. These are the same circumstances that any type of mortgage would be called. When the home is sold by the borrowers, the mortgage is paid at closing. If the circumstances are such that the loan amount exceeds the market value of the home, the bank absorbs the lost. This is called a non-recourse loan. We'll take the market value price of the home, but you can't sell a $100,000 house to Cousin Joe for $40,000. On any other mortgage we would foreclose, and you would still owe the rest of the money. The heirs have the same options they would have on a home with any type of mortgage...pay with existing funds, refinance into their own names with adequate income and credit, or sell the home and pay from proceeds. Excess proceeds are theirs, but they don't make up the difference if there's a shortfall of proceeds.You cannot outlive the mortgage. There are various ways to access your funds. 1) You can get a lump sum. 2) You can get a monthly check for a set amount of time. 3) You can get a monthly check for as long as you live in the house, no matter how long that is. Even if you were there long enough to use up every penny of your equity, we'd still send a check every month while you live there. 4) You can have a credit line. 5) You can combine these ways too. You get a chunk of money to buy a new car, then put the rest in the credit line. Any combination is possible based on what makes sense for you. The term of this loan is as long as one of the borrowers remains in the house.Some lenders allow people who are not 62 to be on the warranty deed but not be borrowers. In some states they can be on the warranty deed only if over 60. But if there's one borrower and two owners, if that borrower dies or permanently leaves the home, the mortgage is due.Sorry this is so long, but it's not a cut and paste."
This article defines what Reverse Mortgage is, explains how it works and discusses various aspects of Reverse Mortgage. It also talks about its advantages and disadvantages, and discusses if it is right for you. The article also has details about the reverse mortgage products offered by various banks.
Reverse mortgages still have a tainted reputation for some seniors who believe the product hasn’t changed since it first came to the market in the eighties.
Get a primer on everything you wanted to know about reverse mortgages
Information on how a Reverse Mortgage can help you pay your monthly bills. Eliminates your monthly mortgage payment for your parents.
Anybody that has been watching television in the last few years has seen a commercial for a new financial product called a reverse mortgage, but many people have no idea what a reverse mortgage really is.
