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Basic
Features of a Reverse Mortgage
All reverse mortgages—whether
the government-insured Home Equity Conversion Mortgage or a conventional
product—share a set of common characteristics, which include
the following:
- You must be at least 62 years
old and own a home. (Note: There are some conventional
reverse mortgages that have differing age requirements.)
- You ALWAYS retain title
(ownership) to the home. The lender never, at any point,
owns the home, even after you (or last surviving spouse)
permanently vacate the property.
- You must still pay property
taxes and insurance, and keep the home well maintained. If
you are unable to pay your property taxes and insurance,
then a special set-aside from your reverse mortgage can be
created.
- Repayment of the loan occurs
when you (or last surviving spouse) permanently vacate the
home. You or your heirs (estate) then must facilitate the
pay back of the loan using either private funds or selling
the home. After the loan is repaid, all leftover proceeds
from the sale of the home go to you or the estate.
- The amount of funds you are
eligible to receive depends on your age (or age of the
youngest borrower in the case of couples), the value of the
home, the interest rate and the upfront costs. With the HECM
product, the county lending limit is a factor. With all
products, the older you are, the more proceeds you are
eligible to receive.
- Loan fees can be financed, or
paid out of the available loan proceeds. This means you
incur very little out-of-pocket expense to get a reverse
mortgage. In most cases, you only have to pay for the
appraisal, which costs roughly $350 depending on your
market.
- The loan balance (amount owed)
grows each time you access funds from your line of credit or
receive a monthly payment. In addition, the lender is
charging you interest on the outstanding loan balance as
well as a monthly servicing fee.
- Repayment of the loan is not
required until you (or the last surviving spouse)
permanently leave the home as a primary residence. For the
HECM program, you can live up to 12 consecutive months
outside the home, but this may vary for other products.
- All reverse mortgages have a
"non-recourse" feature, which means that the total
amount owed can never exceed the appraised value of the
home. If the amount owed exceeds the home's appraised value,
then the lender or the federal government (in the case of
the HECM product) will absorb that loss.
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