A reverse mortgage is a home loan that provides cash payments based on home equity. Homeowners normally “defer payment of the loan until they die, sell, or move out of the home.” Specific rules for reverse mortgage transactions vary depending on the laws of the jurisdiction.
To be eligible for a Reverse Mortgage, you must be over 62 years old, have considerable home equity, your home must be your primary residence, and meet FHA property standards. Single family homes, condominiums, townhouses qualify.
Payout is determined by the age of the youngest borrower, appraised value of the home, equity in the home, and current interest rates. Payout is made in a lump sum, line of credit, tenured monthly payments, monthly payments for a specific term, or a combination of the above.
The borrower’s responsibilities include paying the property taxes on time, keeping homeowner’s insurance current, maintaining the home in good repair, and continuing to live in the home. If the owner moves out of the house into an Assisted Living facility for more than a year, the full amount of the loan is due. The loan must be paid off within six months of the death of the owner.
Loan origination fees are fixed through HUD, for budgeting use 3%. An typical adjustable rate mortgage budget for a reverse mortgage is the LIBOR rate + 3%, but can vary due to age and other variables.
In 1997, The National Reverse Mortgage Lenders Association (NRMLA) was organized and offers a certification to originators who have completed NRMLA’s Ethics Course; passed a rigorous exam, a background check, closed more than 50 loans, and have 2 years experience.
This article is for informational purposes only and is not a complete summary of information needed to recommend any investment. Consult the appropriate professional to determine how this information applies to your unique situation.
About the Author: Charles Marsala is a Financial Advisor with Benchmark Investment Group with Securities offered through LPL Financial, a member FINRA/SIPC. He can be contacted at Charles.Marsala@lpl.com