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The True Story of How Reverse Mortgages Work

January 28, 2022

As of 2020, there are over 500,000 reverse mortgage borrowers in the U.S. Reverse mortgages are indeed a popular loan option that allows homeowners to access the value of their property and receive monthly payments based on this valuation. Reverse mortgages are beneficial because homeowners can enjoy their home’s equity without selling it, and the loan may also supplement income while regulating recipients’ consumption patterns. If you’re interested in accessing your home’s equity, it’s important to understand a reverse mortgage and all of its requirements. Read on to learn all about the reverse mortgage details and reverse mortgage myths that every borrower should know.

What Is a Reverse Mortgage?

A reverse mortgage is an often-misunderstood type of home loan that allows borrowers to borrow against their home’s value and receive payment in monthly increments, a lump sum, or a line of credit. The Federal Housing Administration insures reverse mortgage loans through the Home Equity Conversion Mortgage program, which allows homeowners to apply for the loan through approved lenders. In order to be eligible for a reverse mortgage, applicants typically must be at least 62 years old, and the home in question must be the borrower’s primary residence. The sum of the loan is repaid when the home is sold, or the borrower moves or passes away. Prior to that point, income from a reverse mortgage is non-taxable and can be used for any purpose.

Reverse Mortgage Facts

There are plenty of reverse mortgage myths floating around that dissuade some people from considering it. When you fully understand reverse mortgage details and facts, though, you’ll see that it can be a great option for homeowners who want to take advantage of their home’s equity. Check out the following facts to better understand what a reverse mortgage entails and why it might be right for you.

Reverse Mortgages Are Regulated Just Like Traditional Mortgages

A quick Google search will reveal plenty of critics questioning the lending practices associated with reverse mortgages. This is a common concern, but fortunately, reverse mortgages are subject to the same federal lending regulations that any other loan is. Many lenders are also Certified Reverse Mortgage Professionals, which means that they comply with the ethical and professional guidelines established by the National Reverse Mortgage Lenders Association. If you have lingering doubts about the legitimacy of a reverse mortgage agreement, you can consult with a lender to see whether it’s the best option for your needs.

The Rules for Qualifying Are Straightforward

Yet another common concern is the list of criteria borrowers must meet to qualify for a reverse mortgage. In reality, the rules for obtaining a reverse mortgage are not difficult to understand or adhere to — in fact, a reverse mortgage is sometimes even easier to obtain than a traditional mortgage. Criteria for qualification typically include the following:

  • Borrowers must be at least 62 years old
  • The home must be the primary residence
  • There must be sufficient equity to borrow against
  • Applicants must complete pre-loan counseling

It’s important to note that different lenders have different criteria, but these are the rules that are typically standard amongst HECM lenders.

There Are Different Borrowing Options

Some prospective borrowers are concerned about the loan options available when applying for a reverse mortgage. Though reverse mortgages typically follow a standard process, different options are available to ensure that the loan meets the borrower’s needs. Money may be withdrawn as a lump sum, for example, or disbursed in monthly payments. Alternately, you may establish a line of credit through your reverse mortgage to fund large purchases. A consultant can help you review all the payment and loan options available to ensure you find the right one.

Clients Retain Ownership of Their Homes

One of the greatest benefits of a reverse mortgage is the flexibility and freedom it affords to borrowers. In fact, borrowers can retain ownership of their homes even when they take out a reverse mortgage loan. To retain ownership, clients must meet all criteria of the original loan contract. This typically includes taking care of the home, making necessary repairs, keeping up to date on property taxes, and maintaining a homeowner’s insurance policy.

A Home With a Reverse Mortgage May Be Passed on to Heirs

Many people are hesitant to consider a reverse mortgage loan because they erroneously believe that it will prevent them from willing their home to an heir. This is a common misconception. When a reverse mortgage is initiated, only the sum that has been borrowed must be repaid. In other words, any remaining equity may still be passed on to the homeowner’s beneficiaries, and the amount that was mortgaged would be repaid to the lender upon the sale of the home. Alternately, an heir may choose to keep the home by repaying the mortgaged sum outright.

Reverse Mortgages Are Comparably Priced to Other Loans

Another one of the most common reverse mortgage myths is the idea that interest rates are substantially higher for reverse mortgages than traditional mortgages. In fact, the loan’s interest rate depends on a wide range of factors, and it can vary accordingly. Other variables in the cost include the value and equity estimate, the terms of the loan, the condition of the local market, and the applicant’s age. If you’re worried about having the assets to sustain yourself and your family, a reverse mortgage can be a low-cost, high-reward option.

Find the Right Reverse Mortgage

There are plenty of reverse mortgage lenders on the market, but finding the right one isn’t easy. You need to find a company that’s trusted and reliable. Your Reverse Mortgage has been serving homeowners throughout California since 2008, and we focus exclusively on lending to seniors like yourself. Our team members boast nearly 100 years of combined experience in the mortgage industry, so you can trust us to provide the guidance you need. Call us at (925) 969-0380 or reach out to us online.

 

Image Source: William Potter / Shutterstock

Beth Miller-Rowe profile picture
Beth Miller-Rowe
At the Reverse Mortgage Group, we will help you with financial stability. Please Contact Us anytime if you have any questions.
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About my blog
At the Reverse Mortgage Group, we will help you with financial stability. Please Contact Us anytime if you have any questions.
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