Senior Mortgage: How Does a Reverse Mortgage Work?

You’ve probably seen the commercial on TV about the senior mortgage, and you want to know just how does a reverse mortgage work in your situation. If you are a senior homeowner aged 62 or older, it can be a valuable means of accessing a portion of your equity.

The U.S. Department of Housing and Urban Development (HUD) created the HUD reverse mortgage in 1989. The HUD Senior Mortgage is a federally-insured private loan. It’s a safe program that can give seniors greater financial security. The reverse mortgage can be used to supplement social security, medical expenses, home improvements, and pay off debt. The reverse annuity mortgage is just one of the many options available in the reverse mortgage program.

A senior’s home might be their largest single investment, seniors deserve to know more about HUD reverse mortgage, and decide if has the value and benefits that they are looking for.

A HUD reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of making mortgage payments can be paid back to a senior. Unlike a traditional mortgage, no monthly payment is required as long as the seniors continues to live in their house. HUD’s federally-insured reverse mortgage programs provide these benefits.

The senior mortgage and how does a reverse mortgage work

Senior Homeowners 62 and Older May Be Eligible

HUD’s Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own and live in the home and the mortgage balance must paid off with proceeds from the senior mortgage. A senior must have counseling from a HUD approved agency prior to applying for a HUD reverse mortgage loan.

Your home must be a single family dwelling or a two-to-four unit property that the senior owns and occupies. Detached homes, Townhouses, and manufactured homes built after July 1976 are eligible. Condominiums must be FHA-approved.

Reverse Mortgage is Different than a bank home equity loan

With a traditional second mortgage or HELOC, the senior must have sufficient income to debt ratio to qualify for the loan, and is required to make monthly mortgage payments. The HUD reverse mortgage is different in that it pays the senior, and there is no income requirement for the reverse mortgage.

The senior doesn’t make payments, because the loan is not due until the home is no longer the principal residence. Like all homeowners, the senior must still pay their real estate taxes, insurance and utilities. The FHA-insured HUD Reverse Mortgage protects seniors from being foreclosed or forced to vacate their house because of a missed mortgage payment.

The Senior Can Stay in Their Home for the Rest of Their Lives

There is no need to repay the senior mortgage as long as one of the borrowers continues to reside in the home and maintains paying their taxes and insurance. A senior will never owe more than your home’s value, and be allowed to stay in their home as long as they want.

A Senior Can Leave an Estate to Their Heirs

When the last surviving borrower dies, or moves away from the home, the remaining equity in your home, belongs to the senior or their heirs. The home is the only asset that can be tied to this loan, so this debt will never be passed along to the estate or heirs.

Seniors Can Access Equity in Their Homes

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s senior mortgage lending limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

Don’t Count On an Estate Planning Service to Find a Reverse Mortgage

HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! Contact a senior mortgage lender who is a member of the National Reverse Mortgage Lenders Association directly.

Who is eligible for a reverse mortgage?

You are eligible for a reverse mortgage if you meet the following conditions
You are 62 years of age or older
You are the property owner or you have a small mortgage balance
The property is your principal residence
You do not have outstanding or unpaid federal debt
You are able to take part in a session on consumer information given by an approved Home Equity Conversion Mortgage (HECM) counselor.
No income or employment qualifications are required of the borrower
Remember, you can be awarded a reverse mortgage regardless of current income or employment qualifications. If you meet the above criteria, the next step is to contact a reverse mortgage specialist.

What will an HECM counselor do?

Explain in detail how a reverse mortgage works.
Discuss the eligibility requirements and ensure that you are a viable candidate for a reverse mortgage.
Discuss the financial implications of obtaining a HECM, and alternatives available.
Explain provisions for the mortgage becoming due and payable.
After meeting with an HECM counselor, you will be better informed to decide whether a reverse program is a suitable option for you.
HECM counseling is a required prerequisite of the reverse mortgage; however it’s a great idea to talk to a few reverse mortgage specialists first to see if you qualify.

How much can I borrow?

Your mortgage amount is based and depends on:
Your age (the age of the youngest borrower)
The current interest rate
The appraised value of your home (the appraised value, HECM FHAs mortgage limit, or sales price- whichever is less)
The Initial Mortgage Insurance Premium (MIP), dependent on whether you choose an HECM Standard or HECM Saver

HUD Reverse Mortgage Options

Senior Mortgage Benefit Options:

Line of Credit – Access money whenever the senior needs it, and the credit line grows each year as the senior ages!
Tenure – equal monthly payments for as long as the senior lives in the home.
Modified Tenure – combination of line of credit with monthly payments for as long as the borrower lives in the home.
Term – equal monthly payments for a set period of months.
Modified Term – combination of line of credit with monthly payments for a set period of months.

So, how does a reverse mortgage work in personal case? Simply, the answer depends on your unique situation. There are a number of benefits of having a reverse mortgage, so contact a Senior Mortgage specialist today for more information, there is no obligation when you call, and let them know you want to speak to a certified HECM counselor prior to making your decision.