Reverse Mortgages - How they Work

The reverse mortgage program is just that, a reverse mortgage and unlike a traditional mortgage where borrowers have to make monthly payments, a reverse mortgage gives the borrowers payments based on program conditions and requirements.

The requirements of the reverse mortgage program are for the borrower and spouse, if applicable, to be at least 62 years or older. The home the borrower wishes to use as collateral must be the borrower’s primary residence. The mortgage balance on the home must be paid off or have a low enough balance to qualify for a reverse mortgage.

If the requirements of the reverse mortgages program are met then the borrower will be allowed to begin the process of obtaining a reverse mortgage. However, before the reverse mortgage can begin the borrower must speak directly with a HUD approved HECM counselor to ensure full understanding of the reverse mortgage program. HUD and FHA updated the program guidelines to protect mature Americans from some possible pitfalls.

Borrowers should understand there are many reverse mortgage programs and working with a reverse mortgage counselor and lender will assist with making the right program choice.

Any and all fees associated with the reverse mortgage loan are the responsibility of the borrower and must be paid at closing. These fees are normally rolled into the reverse mortgage loan balance. The homeowner’s insurance and property taxes are the sole responsibility of the borrower. The closing costs may be higher than the borrower expects but the reverse mortgage lender will explain the fees in detail during the application phase.

The borrower may be limited or denied full withdrawal of equity from the home. This condition assists mature Americans from overdrawing on the equity in the home and owing more than the home is worth once the borrowers no longer occupy the home as their primary residence.

The reverse mortgage pays the borrower to remain in their home, therefore, the borrower and spouse, if applicable, must reside in the home used in the reverse mortgage program full-time. Failure to do could result in a violation of the mortgage contract and make all payments due immediately.

Another key aspect, which is not necessarily a condition, of the reverse mortgage program is that the borrower is allowed to receive monthly payments, a lump sum, a line of credit or a combination of all three payment forms. Perk of receiving either form of payment is that the money can be used any way by the borrower. There are no conditions as to how the borrower uses the money.

These are just a few of the conditions, borrowers should speak with a HUD approved HECM counselor for additional questions and concerns or contact a reverse mortgage lender. During these economic times it is essential to be informed and finding the right reverse mortgage program will ensure mature Americans are able to remain independent and in their homes.