Maybe you’ve seen the commercials on TV talking about reverse mortgage loans, and you’ve wondered, “What is a reverse mortgage loan?” and “Is it right for my situation?” Obtaining a reverse mortgage loan can be a big decision, so it’s normal to have questions. To help you to determine if a reverse mortgage loan may be right for your situation, here are some common questions and answers about reverse mortgage loans.

1. What is a reverse mortgage loan?

A reverse mortgage loan is a home loan that enables homeowners, aged 62 and older, to convert a portion of the equity in their home into cash payments.

2. What is a government insured HECM program?

The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA) reverse mortgage loan program. Since it’s a government program, it’s federally insured and guaranteed. A HECM loan is a more secure way for older Americans to access the equity in their homes for greater financial security, without making mortgage payments.

3. How is this HECM program “safer” for senior homeowners?

As the homeowner and borrower, you’re never required to make a mortgage payment since the repayment is deferred until you die, or you sell or move out of your home, or you default on other obligations such as insurance or taxes. Also, FHA guarantees that you’ll receive your cash even if the lender defaults. And you never owe more than the fair market value of your home when the loan reaches maturity.

4. Who owns the home if I take a reverse mortgage loan?

You own your home. Your home is just being used as collateral for the money you’re borrowing. 

5. In the future, if the loan exceeds the value of my home, what happens then?

Because of federal insurance, the line of credit is still available, so you’ll continue to receive monthly disbursements you have set up. If the loan balance exceeds the appraised value of your home, the federal government pays for the loss through proceeds from the insurance fund. You or your heirs will never have to pay more than the appraised value of the home or the sale price.

6. How are reverse mortgage loans different today?

Reverse mortgage loans are regulated by state and federal laws, so they are safer to you, the borrower. You retain the title of your home. The lender will not slowly take over ownership of your home. 

Like all mortgage loans, your loan is secured by a lien and you remain responsible for paying property taxes, homeowner’s insurance, maintaining your property, and otherwise complying with the loan.

Hopefully, these FAQs have answered some of your questions. Look for a future blog post that answers more questions about reverse mortgage loans, such as cash restrictions, your obligations, and what happens when your reverse mortgage comes due.

In the meantime, if you have questions about reverse mortgage loans, contact the mortgage specialists at Grandview Lending by calling 317.255.0062. We can provide you with the answers you need and help you find out if you qualify for a reverse mortgage loan. Call us today!

Note: These materials are not from HUD or FHA and were not approved by HUD or a government agency.

 

Update: The financial assessment requirements are effective as of April 27, 2015.

Photo credit: iStockphoto/Kali9