How A Reverse Mortgage Works
Reverse mortgage loans allow homeowners aged 62 or older (both borrowers must be 62 or older in Texas) to convert their home's value into cash or monthly payments without selling or moving. These loans, insured by the FHA Mortgage Insurance program (Reverse Mortgage Authority, LLC and its DBAs do not act on behalf of or at the direction of HUD/FHA or the federal government), are facilitated by the Department of Housing and Urban Development (HUD). Homeowners can borrow against their home's equity or purchase a new home based on the new property's value or purchase price.
Here’s how a reverse mortgage works:
- Payment Options: Qualifying homeowners can receive generally tax-free payments from reverse mortgage lenders monthly, as a lump sum, or as a line of credit. It is recommended to consult a tax adviser.
- Verification: Income, assets, and liabilities will be verified.
- No Repayments Required: No repayments are necessary as long as at least one borrower lives in the home, and taxes, insurance, and HOA dues are paid on time, and the home is maintained in good condition.
- Social Security and Medicare: These benefits are not affected by a reverse mortgage.
- Loan Recovery: Lenders recover the loan amount, plus accrued interest and mortgage insurance when the last homeowner passes away, chooses to sell the home, or a family member chooses to purchase the home. Once the loan is paid in full, any remaining equity will be distributed to your heirs. Compliance with the terms of the mortgage is necessary.
Keep in Mind
Home Ownership: Reverse mortgage borrowers continue to own their homes. With no monthly loan payments required (as long as property taxes, insurance, and HOA dues are kept current and the home is maintained as the primary residence), the loan balance grows over time, reducing the remaining equity in the home. However, home value typically continues to increase.
Responsibilities: Borrowers must continue to pay homeowner’s insurance and property taxes during the loan period and are responsible for home maintenance. Failure to meet these obligations can cause the loan to become immediately due and payable in full.
