Basic Reverse Mortgage Information and Features
There are different types of reverse mortgages, generally speaking though, they are similar in their general design. Here are some of the features plus answers to most questions people have.
Who Owns the Property?
You remain the owner of your home just like you would with standard amortizing mortgage financing. You still remain responsible for paying your property taxes and home-owner insurance and for making property repairs.
After the loan terms expire, you or your heirs must repay all of your cash advances plus interest. Reputable lenders don't want your house; they want repayment
How Much are Financing Fees?
The money you get from a reverse mortgage may be used to pay the various fees that are charged on the loan. This is called adding the "financing" fees to loan amount. The costs are added to your loan balance, and you pay them back plus interest when the loan term expires.
What Loan Amounts Can I Expect?
The amount of money you can get depends most on the specific reverse mortgage plan or program you select. It also depends on the kind of cash advances you choose. Some reverse mortgages cost more than others, and therefore reduces the amount of cash you will actually receive.
Generally speaking, the amounts you can get generally depend on your age and your home's value. There are two basic ingredients to consider:
- The older you are, the more cash you can get; and
- The more your home is worth, the more cash you can get.
The specific dollar amount may also depend on interest rates and closing costs on home loans in your area.
What About Loan Amounts Higher than Those Offered with Government Backed Loans?
Reverse mortgages backed and owned by the private lending companies are known as "proprietary" reverse mortgages. These companies have proprietary or ownership rights to these loans, and they decide which lenders may offer them.
Proprietary Reverse Mortgages
If your home is worth more than HUD's 203-b
limit for your county, one of these loans will probably offer larger cash advances than a federally-insured Mortgage
Can I Pay Off Debt With the Proceeds?
The quick answer is yes, however you must:
- pay off the old debt before you get a reverse mortgage; or
- pay off the old debt with the money you get from a reverse mortgage.
Most individuals pay off home debt with a lump sum advance from their reverse mortgage.
What Happens to the Remaining Equity after the Loan is Repaid?
The debt you owe on a reverse mortgage equals all the loan advances you receive (including any you used to finance the loan or to pay off prior debt), plus all the interest that is added to your loan balance. If that amount is less than your home is worth when you pay back the loan, then you (or your estate) keep whatever amount is left over.
But if your rising loan balance ever grows to equal the value of your home, then your total debt is limited by the value of your home. To clarify; you can never owe more than what your home is worth at the time the loan is repaid. The lender can not
seek repayment from your income, your other assets, or from your heirs.
NOTE: The technical term for this is a "non-recourse limit." It means that the lender does not have legal recourse to anything other than your home's value when seeking repayment of the loan.
What Determines Repayment?
All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. General meaning of a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.
Reverse mortgage lenders can also require repayment at any time if you:
- fail to pay your property taxes;
- fail to maintain and repair your home; or
- fail to keep your home insured.
These requirements are standard on any type of mortgage. On a reverse mortgage, however, lenders generally have the option to pay for these expenses by reducing your loan advances and using the difference to pay these obligations. This is only an option, however, if you have not already used up all your available loan funds.
Other default conditions on most home loans, including reverse mortgages, include:
Changes that could affect the security of the loan for the lender can also make reverse mortgages payable. For example:
- your declaration of bankruptcy;
- your donation or abandonment of your home;
- your perpetration of fraud or misrepresentation;
- if a government agency needs your property for public use (for example, to build a highway), etc.
- renting out part or all of your home;
- adding a new owner to your home's title;
- changing your home's zoning classification; or
- taking out new debt against your home.
Be sure you read the loan documents carefully to make certain you understand all the conditions that can cause your loan to become due.
What if I want to change My Mind?
After closing a reverse mortgage, you have three days to reconsider your decision. If for any reason you decide you do not want the loan, you may cancel it. But you must do this within three business days after closing. "Business days" include Saturdays, but not Sundays or legal public holidays.
If you decide to cancel, you must do so in writing
, using the form provided by the lender, or by letter, fax, or telegram. It must be hand delivered, mailed, faxed, or filed with a telegraph company before midnight of the third business day. You cannot cancel by telephone or in person. It must be written.
We have specialists who are ready to help you.
Our reverse mortgage specialists can help you to understand whether or not this product is the right one for your personal needs and goals. Let us help, give us a call at (516) 627-0200, or send an email right away – we are here to help!