In these challenging economic times, where the economy seems to have gone bulimic, we have to wonder if the trend toward reverse mortgages is an answer or ust a passing fad.

Reverse Mortgages are becoming more popular here in America. Many assume that reverse mortgages were create solely by the ever inventive private lending industry, but the Department of Housing and Urban Development (HUD) had it’s hand in creating one of the first reverse mortgages? Knowing that this lending tool is government approved does give it some credibility.



A reverse mortgage in a nutshell is a special type of loan used by homeowners 62 and older to convert part of the equity in their homes into tax-free cash.

Here is some information about reverse mortgages which was made available to the public through the NRMLA;

All reverse mortgages—whether the government-insured Home Equity Conversion Mortgage or a conventional product—share a set of common characteristics, which include the following:

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§ You must be at least 62 years old and own a home. (Note: There are some conventional reverse mortgages that have differing age requirements.)

§ 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.

What does a reverse mortgage offer seniors? Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more by allowing a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments and can be paid to you in one large payment or monthly. When you have a traditional home equity loan or second mortgage you must make a monthly payment, but with a reverse mortgage no repayment is required until the borrower(s) no longer use the home as their primary residence.

How do you know if you’re eligible for a HUD reverse mortgage? The requirements are simple, you must be 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; must live in the home and you’re required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan.

Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.

You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current and you can never owe more than your home’s value.

There is much to be gained if you are looking for an easy and safe way to enjoy the fruits of your labors via the reverse mortgage. Call me if I can help.

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