Truths and Myths of Reverse Mortgage
Nowadays we see a lot of TV ads advocating reverse mortgages. Many times seniors don’t quite understand the logistics of how a reverse mortgage works. For this reason, I will help clarify a few things to help aging seniors decide if a reverse mortgage is right for them.
The purpose of a reverse mortgage is to provide income to the home owner by taping into the equity of the house. The equity of the home is determined by the market appraisal of a house. The market value as you know fluctuates with supply and demand along with a number of other factors. For this reason, you home may have more equity in it now than 2008 and perhaps less than in 2006. These fluctuations are causes for the differences in home equity.
The qualifying age for a reverse mortgage is 62. This is the minimum age and those younger than this can not qualify.
Most reverse mortgages are home-equity conversion mortgages insured by the Federal Housing Administration (FHA). Borrowers are allowed to receive up to 50% or more of their home equity up to a maximum loan amount of $625,500. The good news is that for FHA approved mortgages there are stringent repayment rules that lenders must follow following the death of the last mortgagee..
It is not until the death of the mortgagee that the principal and interest on the home becomes due. When the death of the last person on the mortgage note occurs, there are several events that take place. The FHA requires loan servicers to send a letter stating that the balance of the loan is due. The heir or estate administrator is then given 30 days to state whether the loan will be repaid or the home sold.
If no response is given, then the bank may foreclose on the property. Therefore, it is very important to send a concise clearly written letter via certified mail to the bank indication the intention of the estate heirs. This will buy time for the property to sell or for a mortgage to be obtained.
The FHA has built-in provisions for lenders to provide extensions of time up to a year for the estate to take these actions. The FHA is looking out for the consumer which explains the leniency towards the mortgagee and their estate..
Furthermore, in August, the FHA relaxed rules to allow a spouse, even if under age 62, who isn’t a borrower on the reverse mortgage to remain in the home as long as he or she wants. The spouse won’t receive monthly payments of home equity, however, and interest will continue to accrue. But there is no lender deadline or foreclosure.
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