About Reverse Mortgages

About Reverse Mortgages aka Home Equity Conversion Mortgages (HECM) for Seniors

Reverse Mortgages are becoming more popular as our population ages. The U.S. Department of Housing and Urban Development’s (HUD) reverse mortgage is a federally-insured loan that provides seniors with a safe plan to give them greater financial security.

The most popular Reverse Mortgage is titled a ‘Home Equity Conversion Mortgage’ or HECM.

How Does It Work?

The Reverse Mortgage allows homeowners age 62 and older to borrow against the equity in their home and convert that equity into a monthly stream of income and/or a line of credit while eliminating all monthly repayment obligation until full repayment of loan is made.

What are the Borrower Requirements?

Age 62 years of age or older
Own your property
Occupy your property as primary residence
There are no asset, income, or credit limitations on borrowers receiving an HECM Reverse Mortgage
Free HUD Counseling given by an approved HECM Counselor

HUD Counseling Helps you Make Informed Decisions:

Homeowners are required to receive consumer education and counseling by a HUD approved HECM counselor so they can make an informed decisions about whether this program makes sense for their particular needs.

What Will I Learn in the Counseling?

Program eligibility requirements
Financial implications and alternatives to obtaining a HECM
Provisions for the mortgage becoming due and payable

Where Does the Money Come From?

The Reverse Mortgage funds are arranged through a mortgage lender like VITEK Mortgage Group.

What is the Mortgage Amount Based On?

The age of the youngest borrower
Current interest rate
Lesser of appraised value or the FHA insurance limit

Lender Requirements:

Homeowner be 62 years of age or older
Home is owned free and clear or has an existing mortgage balance that can be paid off at the closing with proceeds from the Reverse Mortgage and/or other assets if necessary
You must live in the home

What Types of Homes are Eligible?

Single family dwellings, two-to-four unit property that you own and occupy, townhomes, detached homes, condominiums and some manufactured homes are eligible (condos must be FHA approved). Homes must be in reasonable condition and must meet HUD minimum property standards.

How is a Reverse Mortgage Different than a Traditional Second Mortgage or a Home Equity Loan?

To qualify for a second mortgage or a home equity line of credit you must have a sufficient income versus debt ratio to qualify for the loan and you must make monthly mortgage payments. The Reverse Mortgage pays you while requiring no monthly repayment.

How Are Payments Made?

You don’t make payments – The Reverse Mortgage can offer to pay you. The loan is not due as long as you live in the house. Full repayment of the loan and accumulated interest is due only when the home is sold, refinanced, or the last remaining spouse passes or moves.

What Would You Pay?

You still pay your real estate taxes, homeowners insurance, utilities, and maintenance.

How Do You Receive Your Payments? You have seven options:

Lump Sum – take all of the money at once.
Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property.
Term – equal monthly payments for a fixed period of months you select.
Line of Credit - unscheduled payments or in installments, at times and in amounts of the borrower’s choosing until the line of credit is exhausted.
Modified Tenure – combination of line of credit with monthly payments for as long as borrower remains in the home.
Modified Term – combination of line of credit with monthly payments for affixed period of months selected by the borrower.
Combination of Lump Sum, Tenure/Term, and Line of Credit

Will You Still Have an Estate That You Can Leave to Your Heirs?

When the home is sold or you no longer use it as your primary residence, you and/or your heirs will repay the cash you received from the reverse mortgage plus the accumulated interest to the lender. All remaining equity in your home belongs to you or your heirs. This loan is ‘non-recourse’. Never will the homeowner or their heirs and estate ever owe more than the home can be sold for.

If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. HUD’s Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage.

(This program is authorized by the Housing and Community Development Act of 1987, Section 417, Public law 100-242 (12 U.S. C. 1715z-20). Program regulations are 24 CFR 206.)

Source: U.S. Department of Housing and Urban Development (HUD) 451 7th Street, S.W., Washington, DC 20410