HOW DOES A REVERSE MORTGAGE WORK?

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Homeowners who are 62 years of age or older and who have paid off their mortgage or have a small balance left are eligible for a reverse mortgage. A reverse mortgage allows them to convert the equity in their home into tax free cash. A reverse mortgage may also be used to pay off a standard mortgage to eliminate current mortgage payments.

Unlike a standard mortgage or home equity loan, a reverse mortgage does not require repayment as long as the borrower(s) live in their home. Lenders recover the principal and interest when the home is sold, the borrower(s) move out of the home, or the home is refinanced by the heirs. The remaining equity in the home goes to the homeowner(s) or their heirs when the home is sold. If the sale of the home does not cover the remaining balance of the reverse mortgage, HUD covers the amount of the shortfall. The Federal Housing Administration, which is a part of HUD (Housing and Urban Development), collects an insurance premium as part of the reverse mortgage to provide this insurance coverage. The FHA’s mortgage insurance guarantees the borrower(s) that they will continue to receive their loan proceeds even if the Lender goes bankrupt or if the borrower(s) outlive the longevity tables, or the property decreases in value. So even though the mortgage insurance increases the cost of the reverse mortgage, it allows Lenders to sell reverse mortgages at substantially lower interest rates than those offered by FannieMae or private lenders. Hud collects this insurance from premiums charged to the borrowers. This amount is 2% of the home's value up front and ½ % of the loan balance each year. This amount is usually paid by the Lender and is added to the borrower(s) principal balance.

THE AMOUNT OF THE REVERSE MORTGAGE IS DETERMINED BY THE  BORROWER(S) AGE, THE INTEREST RATE AND THE VALUE OF THE HOME. THE OLDER THE BORROWER, THE LARGER THE PERCENTAGE OF THE HOME'S EQUITY CAN BE BORROWED.

For example, at today’s interest rates a borrower 65 years of age could borrow up to 60% of the home's appraised value, a 75 year old could borrow up to 70% and an 85 year old could borrow almost 80% of the home's appraised value.

THERE ARE NO ASSET OR INCOME REQUIREMENTS FOR BORROWER(S) RECIEVEING A HUD REVERSE MORTGAGE!

Unlike a standard mortgage or home equity line there are no income or asset requirements to qualify for a reverse mortgage. There are also no limits on the value of a property to qualify for a reverse mortgage.

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