As a mortgage broker in Palm Beach county, I am often asked about Reverse Mortgages and how they work.
Below is some basic information about them.
- You must be at least 62 years old and own a home. The property may be a mobile home as well.
- 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 keep the home well maintained. If you are unable to pay your property taxes and insurance, then a special set-aside from your reverse mortgage can be created.
- Repayment of the loan occurs when you (or last surviving spouse) permanently vacate the home. You or your heirs (estate) then must facilitate the pay back of the loan using either private funds or selling the home. After the loan is repaid, all leftover proceeds from the sale of the home 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 upfront 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. In most cases, you only have to pay for the appraisal, which costs roughly $350 depending on your market.
- 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.
- Repayment of the loan is not required until you (or the last surviving spouse) permanently leave the home as a primary residence. For the HECM program, you can live up to 12 consecutive months outside the home, but this may vary for other products.
- All reverse mortgages have a "non-recourse" feature, which means that the total amount owed can never exceed the appraised value of the home. If the amount owed exceeds the home's appraised value, then the lender or the federal government (in the case of the HECM product) will absorb that loss.
Reverse Mortgage Payment Options
LINE OF CREDIT- You access funds at your discretion.
Advantage:
1) Flexibility-You can access funds as needed.
2) Growth feature-The unused balance grows. This does NOT mean you are earning interest. The growth factor takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.
TERM- You receive fixed monthly payments for a set period of time.
Advantage:
1) Funds can be automatically deposited into your bank account.
2) You receive larger monthly advances compared to the Tenure payment option.
TENURE- You receive fixed monthly payments for as long as you live in the home.
Advantage:
1) The monthly advances continue for as long as you live in your home, even if the total amount you receive exceeds the value of your home. Despite this, you will never owe more than what the home is worth.
A Reverse Mortgage can seem complicated. Make sure you refer to a competent Reverse Mortgage Specialist. In addition, you may want to have your heirs, financial planner or other interested party participate in your decision. For more information, contact The South Florida Mortgage Lady
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