Reverse Mortgage Basics

Submitted by: Onisha Williams

“If it weren’t for junk mail, the paper industry would have gone out of style with the walkman” ~ Onisha Williams

You’ve seen commercials, heard radio ads, and it is officially the soft murmur topic at every country club, senior center, and park bench in America – The Reverse Mortgage! If you are over 62 and creatively inclined, I am certain that you could create a collage worthy of Braque with the postcards and mailers that you receive from mortgage companies touting any number of jazzy slogans!

I like to keep it plain; we can get fancy another day!

The reality is that no matter how simple someone makes this program sound, it is a dynamic financial product that requires a full understanding of the features and consequence by potential borrowers and their caregivers. There is no “one size fits all” philosophy – good or bad - behind using a Reverse Mortgage. I find that every individual situation is unique for a myriad of reasons, usually surrounding property value, health, family involvement, asset positioning, and the person’s overall estate plan.

With that being said, let’s review the basics of the Reverse Mortgage!

Types – Proprietary and Government Insured. The spectrum of proprietary products is long and wide, although they mirror the Government insured, FHA, products in many ways they have many variants. This is a review of the FHA Home Equity Conversion Mortgage (HECM).

Qualification
• The youngest person on title must be at least 62 years old.
• The property must be a primary residence.
• HECM Counseling Certificate must be obtained.
• A satisfactory FHA approved appraisal to confirm value.
• Title Insurance to verify chain of ownership and release of liens

Use – The program can be used to purchase a new primary residence or to refinance the home you currently live in.

Features – No repayment while at least one borrower occupies the property. Funds borrowed are available in a lump sum, equity line of credit, fixed payments for a limited amount of time, fixed payments for the life of the loan, or a combination of the aforementioned options.

Requirements – At least one borrower must live in the home, retain home owners insurance at all times, timely pay property taxes, and maintain the physical integrity of the property.

Repayment – The loan becomes due to be paid in full if any of the requirements are no longer met, this also includes if at least one borrower does not live in the home for 12 consecutive or the death of the last borrower living in the home. Repayment is usually done through the sale of the property either by the borrower or their heirs. The amount due will include the amount of money borrowed, accumulated interest & service fees, monthly mortgage insurance premiums, and upfront settlement costs that were financed into the loan. Any remaining equity belongs to the borrower or their estate.

I know it seems simple enough, but these are the highlights – explore these resources and continue to follow my Reverse Mortgage Posts!