How a Reverse Mortgage Works
A reverse mortgage is JUST A MORTGAGE!
Like a forward mortgage, the bank DOES NOT own your home, you are simply borrowing money secured by the value of your home.
A reverse mortgage may be used to purchase a new home or refinance an existing home.
So, what makes a reverse mortgage different?
With a reverse mortgage YOU control how the mortgage is repaid.
- Pick the repayment term you want and pay principle and interest each month to pay off the loan just like a forward mortgage.
- Pay interest only each month to keep a constant loan balance.
- Make no payments and accrue interest against the loan balance.
PAYMENTS ARE NEVER REQUIRED.
- Change your mind at any time.
The key is that you – not the lender – decide how to use the loan. There is no set timeframe for repayment of a reverse mortgage.
A reverse mortgage may include a line of credit
- The line of credit has the same flexible repayment terms as the mortgage. Make payments if you choose, but NO PAYMENTS ARE REQUIRED.
- The amount available on the line of credit increases over time, even if the value of your home goes down.
NO PAYMENTS ARE EVER REQUIRED and there is no set timeframe to repay the reverse mortgage.
So, when is a reverse mortgage due?
The reverse mortgage will need to be paid back in full when one of the following Maturity Events occurs.
- The home is sold
- Title to the property is conveyed to someone else
- The last surviving borrower or eligible non-borrowing spouse passes away
- The home is unoccupied for more than a year
- Property taxes, insurance and other property charges are not paid
- Failure to maintain the house
The mortgage balance may be paid from the proceeds of a sale, or a refinance.
What happens if the value of the home is less than the outstanding balance of the mortgage?
The reverse mortgage has a safety net. The borrower or their heirs will never owe more than 95% of the appraised value of the property at the time of sale.
Over time you have probably built equity in your home, that is your money, but it can be hard to access. Refinancing to pull out equity or opening a standard line of credit leads to higher monthly payment requirements at a time when your income may be decreasing. Qualifying for either may be difficult due to decreased income.
Whether used for a purchase or a refinance, a reverse mortgage solves both of those problems. It is a powerful financial tool that lets you use the equity you earned to provide a safe