Home Financing Matters: What is a Reverse Mortgage?

Last week a Realtor called me asking about Reverse Mortgages and his underlying tone was really asking, “Are they safe?”  That started about a 30 minute conversation about the nature and purpose of a reverse mortgage.

Reverse mortgages are like any product or service, they are as good as the people behind them.  The risk to any undertaking is understanding the company you deal with and the guarantor behind the program.  FHA offers a reverse mortgage and its purpose is to help older individuals, or couples, stay in their home while reducing their monthly expenses.  Borrowers must be at least 62 years old at the beginning of the mortgage period and there is no limit as to how long they can occupy the home as their primary residence.

The borrower continues to own the home throughout their lifetime and is responsible for the maintenance, yearly taxes and insurance on the home, but never has to worry about making a monthly mortgage payment.  As long as at least one of the borrowers is able to continue to live in the house as their primary residence, then the house remains in their possession.  At the time of their death, the lender would give the family or their heirs up to 12 months to sell the property, and they would still be entitled to any equity but could not be held responsible for any loss on the lender’s part.

Reverse mortgages serve a purpose to allow elderly individuals on a limited income to remain in their home, while reducing their monthly housing expense by reducing their mortgage payment.  As with any loan product, borrowers should thoroughly discuss their loan with the lender and satisfy themselves with their options.  The one great thing about an FHA Reverse Mortgage is that it requires the borrower to go through a HUD/FHA approved counseling course before any decision is made.  

The course is taught by a third party not associated with the lender and the borrower must complete the course before the loan process begins.  A reverse mortgage may not be for you, but talk with your family, your lender, and a counselor before you rule it out.

Copyright ©2015 Richard Swan

This blog is for informational purposes and is the opinion of the writer.  In financial matters always solicit professional advice and legal counsel if necessary.