Responsibilities and Protections are Key to a Successful Reverse Mortgage
Since its establishment in the 1980s, the Home Equity Conversion Mortgage (HECM), or reverse mortgage, has helped more than 1 million seniors supplement their financial planning after the age of 62.
A HECM allows eligible borrowers to access their home’s equity without having to sell, leave the home, or make monthly payments. Thanks to enhancements and added protections in recent years, the reverse mortgage has become an attractive tool for retirees looking to secure their financial future. However, capitalizing on its advantages requires a solid understanding of its requirements, protections and outcomes.
First, the home will need to continue to remain your primary residence and maintained in good condition. If health or other circumstances force the borrowers from the home for 12 months or longer, the mortgage will become payable in full. In addition, the home’s property taxes and insurance premiums will need to be kept current throughout the mortgage.
Having met your obligations as a borrower, the HECM offers several protections to avoid premature defaults and displacement. These efforts begin with a mandatory loan counseling in advance of applying for a reverse mortgage. It’s an opportunity to completely understand the process and have all of your questions answered upfront.
Protections are also in place if a non-borrowing spouse lives in the home. When the borrower passes away or is forced from the home, the spouse may remain even if they are not a borrower themselves. This protection is limited to couples that were married prior to origination, and will still result in future payouts from the HECM will be discontinued.
Beyond your home’s equity, your age will play a role in determining the amount of your loan. While 62 is the minimum age to apply, the older you are, the more of the funds you will be able to access. Regardless, reverse mortgages are considered non-recourse loans, meaning that if the house becomes worth less than the balance due, neither you nor your estate will be responsible for paying the difference. Instead, the natural resolution of the loan is likely to come with an anticipated foreclosure following the borrower’s death or transition to a long-term care facility.
Designed to allow homeowners to remain in a home as long as possible, while supplementing their income, HECMs can be an integral part of retirement planning. Their versatility can aid in tax reduction, investment, aging-in-place or even travel strategies. Start by discussing with your financial advisor how your home’s equity may help you reach your goals.
It’s also essential that your family or loved ones understand the responsibilities and likely outcomes. They’ll also need to have up-to-date contact information for your lender, in case of situations where you become unable to communicate yourself. If at any time you are unable to meet the mortgage requirements, the first step will be to contact your lender immediately to discuss options.
For more information about HECM loan programs from an experienced lender committed to its customers, visit OpenMortgage.com today.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment