Fair Housing Program - Reverse Mortgages
A reverse mortgage is a loan against your home that you do not have to pay back for as long as you live in your home. With a reverse mortgage, you can turn the value of your home into cash and not have to make monthly repayments. It can be paid to you all at once, as a regular monthly advance, and in amounts that you choose. The total loan must be paid back when the last surviving borrower dies, sells the home, or permanently moves away.
Reverse mortgages are quite a bit different from other types of debt. These loans can be complicated, and you have a lot at stake. So be sure to investigate reverse mortgages carefully before deciding if one makes sense for you.
Who Is Eligible?
All owners of the home must apply for the reverse mortgage and sign the loan papers. All borrowers must be at least 62 years of age for most reverse mortgages. Owners generally must occupy the home as a principal residence.
Single family one-unit dwellings are eligible properties for all reverse mortgages. Some programs also accept 2-4 unit owner-occupies dwellings, along with some condominiums, planned unit developments, and manufactured homes. Mobile homes and cooperatives are generally not eligible.
How Do They Work?
Most Reverse Mortgage loans require no repayment for as long as you live in your home. But they must be repaid in full, including all interest and other charges, when the last living borrower dies, sells the home, or permanently moves away.
Because you make no monthly payments, the amount you owe grows larger over time. As your debt grows larger, the amount of cash you would have left after selling and paying of the loan (your "equity") generally grows smaller. But you can never owe more than your home’s value at the time the loan is repaid.
Reverse mortgage borrowers continue to own their homes. So you are still responsible for property taxes, insurance, and repairs. If you fail to carry out these responsibilities, your loan could become due and payable in full.
What You Get With A Reverse Mortgage.
These loans can be paid to you all at once in a single lump sum of cash, as a regular monthly loan advance or as a credit line. Or you may choose any combination of these payment plans.
State and local governments offer some reverse mortgages. These "public sector" loans generally must be used for specific purposes such as paying for repairs or property taxes.
Other reverse mortgages are offered by banks, mortgage companies, and savings associations. These "private sector" loans can be used for any purpose.
The amount of cash you can get from a private sector reverse mortgage generally depends on your age, your home’s value and location, and the cost of the loan. The greatest cash amounts typically go to the oldest borrowers living in the most expensive homes on loans with the lowest costs. The amount of cash you can get also depends on the specific reverse mortgage plan or program you select. The differences in available loan amounts can vary greatly from one plan to another.
Most homeowners get the largest cash advances from the federally insured Home Equity Conversion Mortgage.
What You Pay?
State and local governments offer the lowest cost reverse mortgages.
Private sector reverse mortgages include a variety of costs:
These costs generally can be paid with loan advances, which means they are added to your loan balance. Interest is charged on all loan advances.
Reverse mortgages are most expensive in the early years of the loan, and then become less costly over time. The cost can be very high in the short term, and is least costly if you live beyond your remaining life expectancy. The federally insured Home Equity Conversion Mortgage (HECM) is almost always the least expensive private sector reverse mortgage.
Consumers considering a private sector reverse mortgage other than a HECM should carefully consider how much greater its cost is likely to before applying. Applicants should learn all they can about reverse mortgages before making a decision.