Reverse Mortgages

A Nest that is also the Nest Egg!

What in the world is a Reverse Mortgage?

Most of you have probably heard the term reverse mortgage, but you probably don't understand the nuances.   So let me try and shed some light on it. 

A reverse mortgage is a loan that allows homeowners ages 62 and older to borrow against the equity in their home.  A reverse mortgage operates in a reverse fashion from the standard mortgage that you know.  You take out a loan against the appraised value of your home and the lender pays you, either a lump sum, monthly payments, or provides a monthly credit line – all tax free. The proceeds can be used for anything, health care expenses, home improvement, a more comfortable retirement, vacation, or whatever.  The loan is not paid back to the lender until you have to move out of your house or upon your death. You can live in your house for the rest of your life and not have to be worried about making any type of mortgage payment.  You actually get paid to live in your house by utilizing the equity that you have accumulated throughout the years.   As long as you take care of your house, you can have the best of both worlds – access to your home’s equity and the continued affordability of your home.

Now I know what your thinking…   it can’t be that simple!  Essentially it is that simple, but there are a lot of different ways to structure the loan, and you probably have a ton of questions.  So let me try and answer them.  I will give you some answers to the most popular questions but if you have more questions please feel free to call me at 805/413-8359.  

“What happens if I move or pass away?”  The loan against your house comes due, and you or your heirs get to keep the difference between the loan amount and the selling price.  There is no guarantee that your home’s value will continue to appreciate but at the same time, if its value happens to decrease, you do not have to make up the difference. You will never owe anything as a result of taking a reverse mortgage.  

If you currently have a monthly mortgage payment that loan will be paid off so you have no monthly payments for as long as you live in your home.

There are no income requirements.

There are no credit requirements.

It will not affect your social security.

There is no minimum amount you can borrow.  There is a maximum amount.  That amount is determined by several factors such as your age, the value of your home and the maximum loan amount for the area. Depending on the type of loan you select will determine the maximum loan amount.  The maximum loan amount in Southern California is $290,319.  However, do not think that you will automatically get that amount.  It will depend upon your specific variables.  I will be happy to calculate that amount for you on a case by case basis. 

“Are there ongoing fees after closing?”  Yes, there is a monthly servicing fee.  These fees will be included in your loan balance as the charges occur.

“Can I be forced to sell or vacate my home if the money I owe on the loan ever exceeds the value of my home?”   Absolutely not!  As long as you continue to occupy the property as your principal residence you cannot be forced to sell or vacate the property, even if the total amount you owe on this loan exceeds the value of the property. Or if the fixed term over which you received monthly payments has expired. 

“Will my heirs owe anything to the mortgage lender if I die?”   Upon your death the loan balance consisting of principle paid to you or on your behalf, plus any accrued interest, becomes due and payable.  Your estate may choose to repay the loan be selling the property or they may want to pay it off by other means so they can keep the home.  If the loan should exceed the value of your property, your estate will owe no more than the value of the property; the mortgage insurance will cover any balance due to the lender.  No additional financial claims may be made against your heirs or estate.  You will never owe any more than the property is worth.

“If my home appreciates in value during the mortgage term, who will be entitled to that money?”  You, or your estate, are legally required to pay back to the lender only the outstanding balance due.  Any money remaining after the mortgage is paid belongs to you, or upon your death, to your estate.

“Is this a fixed rate loan?”  There are no fixed rate reverse mortgage loans.  There are only adjustable rate mortgage loan programs. Depending on the type of loan program they cannot increase to a ceiling of either 10 or 12% over the life of the loan, depending on the type of loan program selected.

Feel free to contact me, if I can be of any service!  My Direct Line is 805/413-8359.