NDSU Extension - Ramsey County


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My House and Me and a Revser Mortgage

My House and Me and a Reverse Mortgage


          The option of a reverse mortgage has always existed but with the economic downturn and the aging of America’s population, reverse mortgages are making the news again.

          A reverse mortgage is essentially a loan against your home that you do not have to pay back for as long as you live there.  It allows homeowners age 62 or older to borrow cash from the equity in their homes without having to make monthly payments.  A reverse mortgage is often advertised as a great source of easy money for older homeowners to supplement their income, pay healthcare expenses or use the money as they please.  However, the Federal Deposit Insurance Corporation reminds us while there are potential benefits to a reverse mortgage, it may not be the best option for everyone.  Following are some of the latest tips from the FDIC -

          Remember that a reverse mortgage is a loan that must be repaid.  Some advertisements minimize the repayment factor to such an extent, many homeowners may miss it.  A reverse mortgage is a very complicated loan that uses home equity as collateral.

          Reverse mortgages allow homeowners to receive cash in a lump sum, through monthly payments or as a line of credit whenever they need money, or any combination of these options. Unlike traditional mortgage products, homeowners do not make any monthly payments to the lender. However, they eventually do have to repay the principal and interest when they move, sell the house or pass away. And, because no monthly payments are being made, the amount owed will grow over time as interest costs build up and, in some cases, as additional funds are advanced.

          The borrower is still responsible for paying the property taxes and insurance and maintaining the house. Failure to do so can cause the reverse mortgage to become immediately due and payable in full.

          Be aware that not all reverse mortgages carry insurance and other protections from the federal government. The most common type of reverse mortgage — the Home Equity Conversion Mortgage or HECM — is offered as part of a program from the U.S. Department of Housing and Urban Development's Federal Housing Administration.   However, there are several types of reverse mortgages that are not FHA-insured. These are mostly reverse mortgages developed and offered by private companies, nonprofit organizations, and state and local governments. They may not offer the same guarantees and protections as an FHA-insured HECM.

          Most reverse mortgages have an origination fee, closing costs and periodic servicing fees. There also is an additional monthly insurance premium for an FHA-insured reverse mortgage. The total amount of fees will depend on the loan product. And while the costs and fees can be added to the reverse mortgage instead of being paid up front, doing so increases the loan balance and incurs interest charges.

          Borrowers also should keep in mind that the more cash they take out and the longer they go without making loan payments, the interest charges and other costs can use up much or all of the equity, leaving fewer and fewer assets for the borrower or heirs. And if you or your heirs want to keep the house instead of selling it, the full loan amount would be due and payable from your own funds, even if it’s more than the value of the property.

          Additional information and guidance on reverse mortgages is available from HUD at www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm

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