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Understanding Reverse Mortgages

There’s a relatively new way for seniors to get needed cash flow from their homes and it’s been around for at least 10 years... a “reverse” mortgage. While this type of loan can turn the value of your home into instant cash, like any type of important financial consideration, it needs to be fully understood before any informed decision can be made. All reverse mortgages, whether it is the government-insured Home Equity Conversion Mortgage (HECM) or a proprietary product, share a set of common characteristics, which include the following:

• You must be at least 62 years old and own a home.
  

• You always retain title (ownership) to the home. The lender never, at any point, owns the home, even after you (or last surviving spouse) permanently vacate the property.
  

• You must still pay property taxes and insurance and maintain the home. Repayment of the loan occurs when you (or last surviving spouse) permanently vacate the home. You or your heirs (estate) then must facilitate the payback of the loan by using either private funds or selling the home. After the loan is repaid, whatever assets remain go to you or the estate.

• The amount of funds you are eligible to receive depends on your age (or age of the youngest borrower in the case of couples), the value of the home, the interest rate and the up front costs. With the HECM product, the county lending limit is a factor. With all products, the older you are, the more proceeds you are eligible to receive.

• Loan fees can be financed, or paid out of the available loan proceeds. This means you incur very little out-of-pocket expense to get a reverse mortgage.
  

• The loan balance (amount owed) grows each time you access funds from your line of credit or receive a monthly payment. In addition, the lender is charging you interest on the outstanding loan balance as well as a monthly servicing fee.

Barton Johnson, the president of Financial Freedom Senior Funding Corporation, simplifies the reverse mortgage and the financial queries that come with it by stating, “Since there are no payments due on a reverse mortgage loan until borrower(s) permanently leave their house, there is no financial qualification or credit underwrite required to obtain one.”

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