Recently, Grandview Lending president Michael Farrell and loan officer Kimberly Irving appeared on the Indy Boomer show to talk about reverse mortgage loans and eliminate some of the misconceptions boomers may have about these types of loans.

Below we recap some of the points Michael and Kimberly made in the video, as well as provide you with additional information about reverse mortgage loans.

What is a reverse mortgage loan?

A reverse mortgage loan is a type of home equity loan for older homeowners. A reverse mortgage loan enables senior homeowners to use the equity in their home for other needs they may have. The good news: The homeowners don’t have to make any monthly mortgage payments. However, the loan must be repaid when a maturity event occurs, such as when the home is sold or the last remaining borrower on the title dies.  

The Federal Housing Administration’s (FHA) reverse mortgage loan is also known as a a home equity conversion mortgage (HECM). A HECM is federally insured and guaranteed loan. What this means is, both the lender and the borrower are insured. The lender is insured so if they default, the borrower continues to receive the agreed upon payments.

Also, a HECM helps ensure that the borrower is never upside down on their home. In other words, over time, you’ve accrued more interest than your home is worth. If that occurs, the government will step in and pay off the interest, so you don’t owe more than the value of your home.

Why would older homeowners want to take advantage of a reverse mortgage loan?

Many seniors age 62 or older live on a fixed income. A reverse mortgage loan can provide them with financial relief, allowing them to maintain the lifestyle in which they’ve become accustomed. Or, they can use their home’s equity to pay for medical expenses, travel expenditures, home maintenance repair costs, insurance premiums, and/or property taxes – whatever they want or need to spend the money on.

Often, people acquire a reverse mortgage loan to help them bridge the time between age 62 and 70. For example, you may want to continue working past the age of 62, and you don’t want to begin receiving social security payments. Or, you may want your social security payment to accrue to a larger monthly payment amount when you’re 70. You might obtain a reverse mortgage loan to use your home's equity on expenses to bridge the time between age 62 and 70. Then, at age 70, you would begin receiving your social security payments at a higher amount.

What are the eligibility requirements for a reverse mortgage loan?

To qualify for a reverse mortgage loan, you must:

• Be 62 years or older.
• Have a credit evaluation performed to prove you have the financial ability to pay for your homeowners’ insurance and property taxes, as well as any required maintenance on your home.
• Take a one-day, third-party HUD class, either online or in-person, to learn more about reverse mortgage loans and to make sure this is the right loan product for you.

Additionally, the home has to be your primary residence. It cannot be a rental property.

What happens when a maturity event occurs?

When you sell your home or the last remaining borrower on the title passes away, then the reverse mortgage loan would need to be paid off or refinanced into another person’s name.

What are some common misconceptions about reverse mortgage loans?

1. You don’t lose your home when you take out a reverse mortgage loan. Your home stays in the homeowner’s name. The lender never has title or ownership of the property.
2. A reverse mortgage loan doesn’t affect your social security or Medicaid qualifications. The payment from a reverse mortgage loan is not income. It’s a mortgage loan.
3. A reverse mortgage loan not only affects the borrower, it also affects the borrower’s heirs. Therefore, it’s important that everyone understands what a reverse mortgage loan is and how it works.

Who should I talk to if I’m interested in a reverse mortgage loan?

It’s important to talk with a reverse mortgage loan expert, like those at Grandview Lending in Indianapolis, to find out what your options are. You may think a reverse mortgage loan might be right for you, but Grandview Lending’s mortgage specialists may find that you would be better suited with another type of loan. As a mortgage broker, Grandview Lending can look at many different loan products and lenders, giving you the flexibility to choose the right solution based on your needs.

Contact Grandview Lending at 317.255.0062 to learn more about reverse mortgage loans.

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