Reverse mortgage defined

Before reverse mortgages came into the market, the only way to receive any money from your home was to sell it, or to borrow against it, requiring monthly loan repayments. Reverse mortgages allow homeowners to get money from their home while still living in it, and making no payments.

The reverse mortgage loan is against your home that you do not have to pay back for as long as you live there. The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage program insured by the Federal Housing Administration. It can be paid to you all at once, as a regular monthly advance, or at times and in amounts that you choose. Rates are estimated by a margin, which is, in the HECM program, the amount added to the one-month Libor index to determine the initial and current interest rate. You pay the money back plus interest when you die, sell your home, or permanently move out of your home. The Federal Housing Administration (FHA), part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans, requires lenders to offer an adjustable rate mortgage, which is an interest rate that changes based on changes in the market-rate index.

To qualify for a reverse mortgage, a prospective borrower must be at least 62 years old and own his or her residence. They must also submit an application to the lender and have the property inspected. In some cases, certain repairs may be required before the lender will approve the loan.

The size of a reverse mortgage depends on many factors, including the borrower's age, the type of mortgage sought, the value and location of the property, the borrower's equity, and current interest rates. As with a traditional mortgage, lenders typically charge an origination fee, an appraisal fee, and other miscellaneous fees.

Generally, borrowers may elect to receive their payments in one of three ways: through a lump sum payment, a series of fixed payments, or as a line of credit which can be drawn upon when the borrower needs the money, letting the borrower decide when and how much money to take out. Occasionally, homeowners will choose some combination of these methods. A reverse mortgage usually comes due when the borrower no longer lives on the property.

Under FHA insured reverse mortgages the borrower receives a guarantee that payments will continue to be made even if the lender defaults. For this reason, a FHA reverse mortgage may offer smaller loan amounts than other programs. This type of reverse mortgage remains in effect as long as the borrower lives in the house.

Reverse mortgages can be a useful planning option for elderly homeowners in need of extra cash. Not only do they provide a steady stream of money, but they also remove what is often the largest monthly expense. Typically, no house notes are due while a reverse mortgage is in place. Furthermore, because reverse mortgages are technically considered loan advances, they are generally not subject to taxes. Most importantly, though, they allow borrowers that might have otherwise been forced to move an opportunity to remain in their homes.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like more information, please call (866) 683-3690 or complete our online Reverse Mortgage Information.

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