You’ve Seen Them Advertised on Television – Now Our Loan Expert, Laura Hertz, Explains
By Laura Hertz, Loan Officer, CSMC Mortgage
What is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners and homebuyers aged 62 or older to convert some of their home equity into cash or a line of credit. Some reverse mortgage loans also let homeowners finance a new home purchase. With a reverse mortgage, a borrower does not make loan payments and they may continue to live in and own their home. Unlike a home equity loan or home equity line of credit (HELOC), borrowers do not have to repay a reverse mortgage until the home is sold or the last surviving borrower (or a non-borrowing spouse) no longer lives in the home. The homeowners / borrowers; however, must always maintain the condition of the home and always stay current on the property taxes and hazard insurance.
Who is Eligible for a Reverse Mortgage?
To be eligible for a reverse mortgage, the following criteria must be met: (i) borrower must be age 62 or older, (ii) the home must be the borrowers’ primary residence, (iii) the borrower must have sufficient home equity, (iv) the home must meet minimum property standards and flood requirements, and lastly, (v) the home must be one of the following property types: single-family home; a two-to-four-unit home with one unit occupied by the borrower; or a HUD-approved condominium. With new construction, borrowers must have a Certificate of Occupancy or equivalent before they apply.
Will the Bank Own the Home?
No. Just like a traditional mortgage, if the borrower continues to meet the loan terms, such as staying current on property taxes, homeowner’s insurance, and property charges, they will retain full ownership. In addition, the borrower can sell the home at any time.
How Much Money Can a Borrower Get?
A borrower may receive a portion of their home’s equity. How much depends on several factors, including the age of the youngest borrower or non-borrowing spouse, their property’s value, the equity in their home, lending limits, the current market rate, and the reverse mortgage product and payment options available to the borrower.
How Will a Borrower Receive the Proceeds?
A borrower can take their funds as a lump sum, line of credit, or as monthly payments. They can also use a combination of these options.
Will the Borrower be Spending Their Children’s Inheritance?
A reverse mortgage may assist borrowers in maintaining a quality of life throughout their retirement years. With any mortgage loan, a reverse mortgage is a decision that may affect other family members, I encourage borrowers to involve other family members in the decision process. When the home is sold or is no longer their primary residence, it’s time to repay the loan. After the loan is paid off, any remaining equity belongs to the borrower or the estate and can be transferred to heirs.
What Are the Costs Associated With a Reverse Mortgage?
Up-front costs may include an appraisal fee, origination fee, closing costs, mortgage insurance premium, a modest charge for Home Equity Conversion Mortgage (HECM) Origination Counseling (if applicable), and a servicing fee. HECM Origination Counseling assists seniors through the process of determining if they are qualified for and obtaining a reverse mortgage loan along with other related topics such as eligibility, loan amounts and loan limits, and future repayments.
A borrower can roll most of the up-front costs into the loan to minimize out-of-pocket expenses. While closing costs vary based upon the type and size of the loan, they’re similar to those for any traditional mortgage. During the life of the loan, interest and a potential monthly insurance premium accrue.
This article is for informational purposes only. If you have any questions regarding your property or specific tax situation, please consult with your tax and/or legal advisor.
The author, Laura Hertz, is a Loan Officer at CSMC Mortgage located in Westlake, California. For more than 25-years, Laura has been a leading mortgage consultant and she specializes in single-family and 1-to-4-unit investment properties. Her approach to lending is to always be upfront and honest with clients, and proactively guides borrowers through the loan process from beginning to end. For more information, contact Laura at (805) 724-0755 or firstname.lastname@example.org.