Reverse Mortgage/Senior Citizens

A reverse mortgage is what it sounds like. It is just the opposite of a traditional mortgage. With a traditional mortgage; the borrowers get a large sum of money. They purchase the property and make monthly payments. The individual(s) pay property taxes and insurance. The equity increases and your interest decreases. You start off paying mostly interest and as time passes, more and more of your money goes to paying the principal and less to paying interest.

With a reverse mortgage loan, the equity decreases and the interest increases. Seniors 62 and older can borrow money against part of the equity that have built up in the home. There are no income verifications for a reverse mortgage loan. When you get a reverse mortgage loan; the borrower must first pay off any existing loan balance that they owe on the home. Whatever equity is left goes to the borrower. The individual(s) never have to make monthly payments as long as one of the borrowers is living in the home. The money is tax free because it is not income. The senior still owns the home and keeps the title. The house is going to do what it is going to do. It may rise in value or the value of the home could drop. However, the borrower still has to pay the interest on the amount of money borrowed. The lender cannot demand payments if the loan becomes greater than the value of the home. The home pays for the loan after the last surviving borrower fail to live in the home for 12 consecutive months or dies.

The home owner is still responsible for paying property taxes and insurance. The reverse mortgage does not affect social security or medical benefits. It’s like getting a loam from lån med betalningsanmärkning och skulder hos kronofogden where you will be provided with the schedule of fees along with all of the policies and agreements.

With a traditional mortgage, you can go into foreclosure if you default in monthly payments. With a reverse mortgage, you can’t go into foreclosure because the loan is not due until all the borrowers either dies or fails to occupy the property for twelve consecutive months; even if it is because of physical or mental health.

The reverse mortgage loan uses equity built up in your home to let you get cash. The older you are the more valuable your home is, the less you owe on it, the lower the interest rate; the more money you will be able to borrow. Depending on the age and other factors like the value of the home; seniors can live in their home free of monthly payments and get cash.

For example; if a senior borrow 325,000 on part of the equity in the home. And the principal pay off on the home is 225,000. The borrower can get the balance of the money in one lump sum; or monthly payments; or a line of credit, or a combination of the above. Keep in mind that interest builds up on all the money a borrower gets. The more money you borrow; the more interest you will owe at the end of the loan. Therefore at the end of the loan interest will have accumulated on any monthly payment, or lump sum, or line of credit the borrower receives. If the borrower decides to later sell the homes, they could end up owing a lot of interest; depending on how much money has been borrowed. However, if the borrower remains with the reverse mortgage, the home pays for itself; regardless of how much interest has accumulated.

Keep in mind that age and the value of the home plays a key role in how much money one can borrow. If a senior is in their early or mid sixties they may just get by with living in their home with no monthly payments. They may or may not be able to borrow enough money to get the lump sum, or line of credit, or monthly payments. It depends on how much equity is built up, value of the home, interest rate, and age.

A reverse mortgage can only be taken out on your primary resident where the borrower lives. Generally a mobile home is not eligible; however, if it was built in 1977 or later; and have a permanent foundation that is approved by FHA. It may be eligible.

There are three types of reverse mortgages:

  1. Federal Insured:

Home Equity Conversion Mortgage (HECM), widely available; no income requirements.

  1. Government Sponsor:

Fannie Mae Home Keeper Reverse Mortgage. This mortgage addresses some needs that are not met by HECM; such as higher value properties and condominium owners. This is useful for seniors that may want to use the loan to purchase a new home.

  1. Proprietary:

Private loans, which are backed by the companies that develops them.

The reverse mortgage may become due if the borrowers fail to pay property taxes or home insurance. The mortgage may become due if the home owner let the property deteriorate beyond reasonable wear and tear and do not repair the property damages.

When the last surviving borrower dies or do not live in the home for twelve consecutive months; the loan becomes due and is paid from the sale of the property. The remaining equity if any, goes to the borrower or the heirs. If the appraised value of the home is less than the loan balance; none of your other assets will be affected. The loan will still be paid off in full. The home pays for the loan.

Since you are not paying monthly payments, on a reverse mortgage loan, you cannot claim the interest when you file your tax return. Also, you can’t get a home equity loan as long as you have the reverse mortgage loan. However, you can sell or refinance the home.

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