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| Reverse mortgage facts |
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A reverse mortgage is a type of loan available to older homeowners. It enables them to convert the equity in their home to cash in order to finance living expenses, home improvements, in-home health care or other needs. Payments are made by the lender to the homeowner. |
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Yes. With a home equity loan repayments begin immediately and the home can have an existing first mortgage. For a reverse mortgage, the mortgage isn’t repayable until the borrower no longer occupies the home as his or her principle residence. This can occur when the borrower dies, sells the home or moves out of the home, say, to a nursing home. A reverse mortgage requires the home to be free and clear (or nearly so) of debt and tax liens. |
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Generally, reverse mortgages are limited to homeowners aged 62 years or older. |
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Payments can be received in the form of a lump-sum payment, fixed monthly payments for life or a line of credit. Some reverse mortgages allow fixed monthly payments for a finite period of time, or a combination of monthly payments and line of credit. |
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The size of the reverse mortgage depends on the type of reverse mortgage, the borrower’s age, the home’s property value and current interest rates. The older the applicant, the larger the monthly payment or line of credit. This is due to the shorter life expectancy which is used in determining the size of the payment. |
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Interest is charged for the mortgage. It's usually at an adjustable rate that can change monthly or yearly. |
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The loan can be repaid by the borrower, the borrower’s family or the estate, with or without the sale of the house. If the home is sold, the proceeds go to the lender with any excess going to the borrower or the borrower’s estate. If the proceeds are less than the value of the loan the shortfall is usually covered by insurance and is not the responsibility of the borrower or borrower’s estate. |
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The repayment obligation is equal to the principle balance of the loan, plus accrued interest, plus any finance charges paid for through the mortgage. The repayment obligation, however, can not exceed the value of the home. |
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Reverse mortgages are offered through banks, thrifts, mortgage banking firms, consumer finance firms and financial services corporations. |
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Some programs require senior home owners applying for a reverse mortgage to complete an approved financial education session (counseling) before they can fill out an application for a mortgage. |
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