This type of mortgage allows a senior 62 years or older to draw upon the accrued equity of their home. A Reverse Mortgage is not repaid until the owners leave the home upon which the loan is drawn upon and will typically be funded in one of the three following manners: a credit line up to a fixed amount, distributed as monthly payments, or paid as a lump sum. A Reverse Mortgage is “tailor made” to the individual(s) and can often become very complicated depending on, but not limited to; the age of the borrower(s), the equity available in the home, current interest rates, a maximum Federal Housing Administration (FHA) mortgage cap determined by the location where the home resides (if FHA insured), and many other factors. The FHA Home Equity Conversion Mortgage (HECM) program is an affordable alternative to many Reverse Mortgages offered by private lenders, however, as with all FHA backed loans, a FHA Reverse Mortgage will be subject to a funding cap that may not suit some borrowers. The AARP website is a great unbiased information source to find answers regarding some of the complexities and nuances involved with a Reverse Mortgage.

Advantages:

• Allows a senior to draw an income from the equity built in their home at a time when their working income is likely gone or decreasing.
• Loan is not due until the owner(s) leave the home.
• A FHA insured Reverse Mortgage is often more affordable than those offered by private lenders.
• In the situation where the value of the home upon which the Reverse Mortgage is drawn is sold for less than the amount loaned, the lender absorbs the loss if it is not a FHA loan. If the loan is FHA insured, the FHA will cover the loss (up to a fixed amount determined by the home location).

Disadvantages:

• Only available to persons 62 years and up. All owners of the home must be 62 or older.
• Owner must live in the home upon which the Reverse Mortgage is drawn upon
• Equity owned in a home is traded for cash.
• A Reverse Mortgage is often complicated
• Owners who choose a FHA insured Reverse Mortgage might be required to pay FHA insurance premiums unless the insurance is factored into the loan amount.

Before You Sign – What to watch out for:

• Ask your lender, Mortgage broker, or Title officer for a copy of your Balance Sheet, Closing Statement, or Settlement Cost Sheet. (This document is called many different things by different institutions; use any of these terms and your lender, broker, or title officer should understand what you’re looking for.) By law, a borrower is entitled to review the settlement cost sheet one business day before closing on the loan – You absolutely must exercise this right and ask questions if you find something you don’t understand! Please follow the link above to find out what should be included in this document and why it matters to you.
• Verify account maintenance fees and/or servicing fees before signing.
• Ask your lender, broker, or Title officer for an accounting estimate of all up-front fees you will be charged. These charges may come from the lender, title company, other third party, etc.
• A couple minor additional costs not included on the preliminary closing statement due to last minute unforeseen charges and exact interest calculations should be expected. These costs should be very small and typically not amount to more than a couple hundred dollars.

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