Well, a reverse mortgage is a type of loan product that allows home owners age 62 or older receive cash in exchange for the equity in their home without having to sell the home or make any type of monthly payment in return.

When considering the “What is a mortgage” issue, it’s important to gain an understanding of how these financial instruments work.  It’s also important to know the different types of reverse mortgages and how they work.  This knowledge will help make sure that you get the deal you can.

Unlike a standard mortgage, where you send monthly payments in to a mortgage lender, a reverse doesn’t require you to pay any monthly payments at all as long as you live in your home.  In fact, as long as you do live in the home and keep your taxes and insurance payments current, you will not have to worry about paying back the loan.  As an extra perk, the money you receive from a reverse mortgage come to you tax-free, and most reverse mortgages don’t have any sort of income restrictions.

Now, you may be asking:  “How do reverse mortgages get repaid?”  Reverse mortgages are repaid when the last home owner to sign on the loan passes away, or when you sell your home, or when your home ceases to be your primary residence.

Different Kinds of Reverse Mortgages

As with most financial products, especially mortgages, there are several varieties of reverse mortgage.  Actually, there are three, and we’ll discuss them for you here.

• Type 1:  Single-purpose Reverse Mortgages
• Type 2: Federally-insured Reverse Mortgages
• Type 3: Proprietary Reverse Mortgages

Single-purpose Reverse Mortgages

Single purchase reverse mortgages are your most cost effective option. They are not offered by every lender in every location, and they’re limited to only one kind of use.  How you may use this type of loan is regulated by the government or non-profit lender that lends the money.  In many cases, these types of reverse mortgages are used to pay off property taxes or make specific home improvements and repairs.  If you’re at a lower or moderate level income, these types of reverse mortgages may be your best and most affordable option.

Federally-insured Reverse Mortgages

Federally-insured reverse mortgages are also known as Home Equity Conversion Mortgages (HECMs) and represent the oldest and most widely used reverse mortgage product. HECMs have been available since 1989 and are insured by the Federal Housing Administration (FHA.  The dollar amount you can receive from this type of reverse mortgage is based on your age, the appraised value of your home, and the interest rate you are able to secure.   In short, the older you are, and the more equity you have in your home (the closer you are to paying it off), the more money you are likely qualify for.  At present, the maximum loan limit for HECMs is set at $625,500.

Proprietary Reverse Mortgages

Proprietary reverse mortgages are private loans that are backed by the companies that develop them.  They’re typically meant for homes with appraised values of over $1,000,000 and are no longer widely available.  In general, HECMs and proprietary reverse mortgages have upfront costs that run higher than normal home loans.

Some Facts about Reverse Mortgage Costs

If you plan to stay in your home for only a short time longer, or you are considering borrowing a small amount, a reverse mortgage may not be the best choice for you.  This is mainly because the upfront costs associated with reverse mortgages can be high, and you want to be sure the amount you’re taking out on the home is justified vs. these expenses.   This said, HECM loans are the most popular types of reverse mortgage.

Counseling Required to Make Sure You Understand Your Options

Before you apply for a HECM, you have to meet with or talk on the phone with a counselor from an independent government-approved housing counseling agency.  This professional explains the your loan’s costs and financial implications, and they provide you with potential alternatives to a HECM, like government and nonprofit programs or a single-purpose reverse mortgage.

You work together and compare the costs of different kinds of reverse mortgages and the counselor explains how different payment options, fees, and other costs impact the total cost of your loan over time.

Reverse mortgage counselors can be found by visiting the Hud Website’s HECM Counseling Look Up area or placing a call to 1-800-569-4287. You will typically pay a fee of around $125 for their services. Typically, this fee can be paid from the loan proceeds, but you cannot be turned away if you can’t afford the fee.

What is a Reverse Mortgage? is from Florida Home Loan Report

The Home Equity Conversion Mortgage, or HECM, is probably the most typical kind of reverse mortgage.  This financial vehicle has been around for a while, as it was first brought into existence by the Federal Housing Administration (FHA) back in 1989.

As most people understand, standard fixed or variable rate mortgages provide a payment to borrowers for the purpose of buying a home and must be paid back over a set period time – typically 15 or 30 years.  Where reverse mortgages are different is in the fact that they do not need to be repaid until the loan has reached maturity.  Homeowners are not required to pay any of the interest or mortgage payments and may stay in the home until death or their decision to move as long as insurance and tax payments are kept current.

Do I Still Own My Home with a Reverse Mortgage?

Absolutely.  In fact, you still make insurance and tax payments as normal, and you retain full ownership and use of the home.  You receive monthly statements that track the interest growth on your reverse mortgage total, but you do not pay anything, as the mortgage does not come due until the end of its term.

What Are the Qualifications to Receive a Reverse Mortgage?

Permanent residents and citizens of the United States age 62 or older may qualify for reverse mortgages so long as they maintain a substantial equity position in the home.   Your loan amount depends on a variety of factors include the age of the  youngest owner, current mortgage rates, and your home’s appraised value.  No credit score or income information needs to be provided, as you are not making monthly payments on your reverse mortgage.  The main stipulations are that you need to continue paying property taxes and homeowner’s insurance and must remain living in the home.

Can I Choose to Pay Back My Reverse Mortgage And Keep My Home?

Absolutely.  If you desire, you may begin making payments back to the loan company on a voluntary basis to pay the mortgage in full or in part without incurring any sort of penalty.  If you choose to do repay your reverse mortgage loan, you may also take some of the interest payments you make off your yearly tax bill.  Consult your tax professional for details.  Additionally, you may pay the loan off in full at any time by selling your home, paying it off with cash, or refinancing your home.

How Are Reverse Mortgages Typically Repaid?

As mentioned, you may pay off your reverse mortgage on a voluntary basis.  However, should you choose to let the loan run its course, the total will come due at the passing of the last surviving homeowner.   The loan will also come due if the last surviving homeowner chooses to stop using the home as her or his primary residence.  Any heirs to the home have up to 12 months to sell or refinance the home to pay off the remaining balance, should they choose to keep it.

Should any remaining heirs to the home not want to keep the residence, the lender typically forecloses on the home.  If the foreclosure sale does not earn enough to cover the balance due on the reverse mortgage, the FHA insurance premium  you paid when you closed your reverse mortgage will kick in and reimburse the lender for what balance remains.

Who Are the Best Candidates for Reverse Mortgages?

Reverse mortgages are for anyone who needs money to take care of life’s unforeseen circumstances.  These mortgage programs are perfect for anyone who wants to use the equity they have built up in their home without having to move from it.

Who Should Not Consider Reverse Mortgages?

People who do not foresee living in their home for a long period of time after the reverse mortgage has been taken out should not seek a reverse mortgage?  There are costs you must pay up front (appraisal fees, etc.) for this mortgage just like any other, which you would want to avoid paying as well.

Do I Pay Taxes on Reverse Mortgage Funds?

No.  Any funds received from reverse mortgages are not considered income and are not taxed.

Am I Required to Go Through Mortgage Counseling to Get a Reverse Mortgage?

Yes.  Per federal guidelines, you are required to go through a face to face or phone-based counseling session pertaining to reverse mortgages.   Certification of your completing such a session is sent to your mortgage lender.

Is There Anything Else I Should Know About Reverse Mortgages?

There is a chance that the inflow of cash from your reverse mortgage may move you outside of the range of benefits received from public assistance programs (Medicare or Medicaid) should you currently receive these.  Check with your tax professional for details.

All reverse mortgages carry the same safeguarding measures discussed in this article.  So, you should shop around to find mortgage lenders who service their own loans, if this is important to you.   You may also find that there are better interest rates with different lenders, so be on the lookout for these as well.

What You Need to Know About Reverse Mortgages is from Florida Home Loan Report