A Reverse Mortgage is also known as a home equity conversion mortgage or HECM. Its a financial product for homeowners that are 62 years of age or older that have accumulated home equity and want to use it as a supplement for retirement income. Unlike your conventional mortgage, there aren’t the usual monthly mortgage payments. The borrower(s) are still responsible for paying insurance on the property and taxes as well as using the property as a primary residence for the span of the loan.
These types of loans can be hard to explain and even harder to understand but can be put into better perspective by taking a look at the home equity loan for comparison. Basically, the reserve mortgage is a home equity loan that has been designed to help seniors rely on the equity that they have built in their home. It also can be compared to a traditional forward mortgage. In your run of the mill forward mortgage, the borrower makes monthly payments to their lender which in turn allows for the reduction on the loan balance and helps the borrower to gain equity. In a reverse mortgage arrangement, the borrower receives payments from their lender but does not have to make those traditional monthly payments on the agreement that they remain living in their home and continue paying for things such as insurance and taxes. This results in the loan balance growing over time instead of reducing the way a traditional forward mortgage dies. The borrower gets their payments, the interest accrues on the loan and their equity begins to decline.
Just like with any loan, it needs to be repaid and the reverse mortgage is just the same as any loan. The loan becomes due when the borrower pass away or sell their home. The borrower can also pay off the loan if they choose. Typically the loan is repaid once the home is sold. Reverse mortgages are designed so that the money owed may not exceed the value of the home. To explain further, if the Reverse Mortgage is for $275,000 dollars and the home sells for $260,000, the borrower will not owe the difference to the lender. If the home sells for more than the loan the borrower keeps the difference. Ex. The home is listed at 275K and sells for 285k, the borrow pockets the 10k.
Most all reverse mortgages are originated as Home Equity Conversion Mortgages which is a program that is run by the Federal Housing Administration. These loans are guaranteed by the federal government. If you are interested in pursuing a reverse mortgage you can work with US Direct Lender to have a quick application process. We are a direct lending company which means we specialize in lending our own money and approving loans moves much faster than other lenders. Call us today for a free consultation (626) 460-8900.