Reverse mortgage television commercials abound, but it is hard to get straightforward — easy to understand — answers in response to your reverse mortgage questions.
Here are some of the most common reverse mortgage questions people have and some very surprising answers:
This is one of the most common reverse mortgage questions. Yes. Reverse mortgages are loans. With a reverse mortgage, you are borrowing your own home equity. However, unlike traditional home equity loans, no loan payments need to be made until the loan comes due.
People are used to loans being something that you need to make payments on. However, with a reverse mortgage you are not obligated (although it is allowed) to pay anything back while a reverse mortgage loan is in effect.
Find out how much you can borrow.
Yes. It is possible. However, don’t panic.
You would have to reach the age of 150 years old to have a reverse mortgage come due. (NOTE: No one has ever lived to be 150. And, while life spans are increasing, we are not approaching this milestone. And, if you actually live to be 150 years old, you will probably be famous enough to have a few other options for housing.)
The language about aging out of your reverse mortgage at 150 is only in the fine print for legal reasons, not because lenders want to foreclose on anyone.
A few years ago, the media often reported on foreclosures. At that time there was a problem because borrowers were not paying taxes and insurance on the property or because a much younger spouse was not included on the loan.
However, over the last 3 years the Federal Housing Administration, which insures reverse mortgages through its Home Equity Conversion Mortgage (HECM) program, has made substantial program changes to make it much safer for consumers. (HECMs are the most common type of reverse mortgage.)
Recent consumer protections include:
- Spouses younger than age 62 can now be included on the loan.
- If the lender is concerned that a borrower will not be able to continue paying taxes and insurance, then steps might be taken to insure these payments are made.
To be clear, what may trigger your reverse mortgage becoming due are fairly straightforward. If you are keeping good on the terms of this product you would not need to worry about ever being forced from your home because of your reverse mortgage loan. Some of these terms include:
- Maintaining the home as your primary residence
- Staying current with your property tax and homeowners insurance payments
A reverse mortgage is a non recourse loan. This means that the lenders have no recourse except for the home itself.
So, you — or your heirs — are only responsible for paying back an amount no more than 95% of the home’s appraised value—even if what you owe exceeds the value of the home.
So, if you owe $200,000 on the home, but the house is only worth $100,000, then you can pay back the loan by selling the home and the bank gets around $100,000 but you will never owe more than the value of the home when the loan comes due.
If you qualify for the loan, absolutely! In fact, many borrowers get a reverse mortgage for the sole purpose of eliminating monthly mortgage payments. Your mortgage is probably your biggest bill, imagine how much more you could do if you did not need to pay that every month.
If you have an existing mortgage, then a portion of your reverse mortgage loan amount will go to paying off that loan.
Find out if you qualify for a reverse mortgage — with or without an existing mortgage.
A reverse mortgage from a reputable lender is no more of a scam than a home equity mortgage from a reputable lender. Both products are loans and you are paying (or promising to pay) a financial institution back the principal plus interest.
That being said, there are some companies and a few individuals that act with less scruples than others — for all kinds of financial products, mortgages included.
If you are interested in a reverse mortgage, then you need to make sure you are working with a reputable lender. Look for lenders who:
- Are approved by the Federal Housing Administration (FHA)
- Adhere to the National Reverse Mortgage Lender Association (NRMLA) guidelines for best practices
- Have a clean record with the Better Business Bureau
- Are verified as reputable by at least two references
NewRetirement.com has always scrupulously checked the licensing, business practices, and memberships of reverse mortgage originators. Find a prescreened reverse mortgage lender now.
Many potential reverse mortgage borrowers often feel like too many people — from movie stars to loan officers — are just trying to sell them on the loan.
But you probably have a lot of real life reverse mortgage questions that you want answered. You may want to consider meeting with a reverse mortgage counselor.
The goal of reverse mortgage counseling — which is required as part of the reverse mortgage application process — is to help you make the best decision for you: The session will:
- Educate you about how reverse mortgages work
- Help you explore alternatives to reverse mortgages
- Provide guidance to help you make the best decision
- Provide support throughout the reverse mortgage application process
Learn more the counseling process or talk with a lender who can refer you to an approved option.
If you were disappointed by your reverse mortgage loan amount, you are not alone. Most people feel kind of let down by the amount of cash they can access.
In fact, most potential borrowers ask, “if my home is valued at $300,000, why can’t I borrow that much?” Just like you need to make a down payment when you purchase a home, you must have an ownership stake in your home when you get a reverse mortgage. You can’t borrow the full value of your home, because you need to have an ownership claim on it.
Best of all, this remaining home equity gives you a back up plan on the loan.
Use a reverse mortgage calculator to find out what you can really borrow.
