Thinking about a Reverse Mortgage? Things you need to know!
OK, so you’ve seen the ads on TV with your favorite “celebrity spokesperson” touting the benefits of a reverse mortgage. You may have spoken to a friend or relative about the idea of getting one. You may have gone on the internet to do your “due diligence” and now you’re as confused as ever! How do you know who or what to believe?
If you’re serious about finding out about how a reverse mortgage works, you need a good comprehensive education based on accurate, updated information. A reverse mortgage is a complicated product with a lot of moving parts and there are a lot of misconceptions about how they actually work.
The most common misconception is that people think that the bank owns the home. A lot of people think that when you get a reverse mortgage you’ve essentially sold your home to the bank and they just let you live there until you die and then they sell the home and keep whatever equity is left! The bank does NOT own the home. The borrowers stay in title to the property and their heirs inherit the property when they die. When the home is sold, after the lender is paid what they’re owed, the borrowers (or their estate) retain the remaining equity, just like they would if they had a traditional mortgage.
In the unlikely event the loan balance exceeds the home value when the home is sold (think 2008!), the heirs will never inherit the remaining debt. That’s because, with a reverse mortgage, the borrowers have no personal liability when it comes to paying off the debt. The houseis on the hook for the debt, not the borrowers or their estate. That’s why a reverse is called a “non-recourse” loan and is insured by FHA. FHA (the Federal Housing Administration) is essentially a government backed insurance company. They insure both traditional mortgages and reverse mortgages. You, as the reverse mortgage borrower, can live in the home for as long as you wish and never have to make a monthly mortgage payment, as long as you occupy the property and keep your property taxes, homeowners’ insurance and homeowners association dues current.
It sounds too good to be true, but it isn’t. A reverse mortgage insured by FHA is a legitimate financial product that’s been around since 1989. It’s called a HECM (Home Equity Conversion Mortgage) and it’s meant for seniors over 62 who want to “age in place” in the homes where they’ve built up equity over time.
If you’re interested in learning more about how a HECM really works, please contact:
Tim Malcolm, NMLS #420505
Reverse Mortgage Loan Originator
909 NE Loop 410, Suite 902A
San Antonio, TX 78209