What Is A Reverse Mortgage?
You've seen the commercials and you've heard people talk about it, but do you really know what a reverse mortgage is? This might come to a surprise to you, but it's nothing more than a mortgage loan secured by your home. Just like any other mortgage you might have had in the past. With some differences. It's only available to homeowners over the age of 62 and it's only available on principal (aka primary) residences. It allows a homeowner to use part of their home equity to obtain cash proceeds that can be used in many ways. With me so far?
It has more flexibility. Really? A reverse mortgage gives you the option to decide whether you would like to make a monthly payment or not. Most borrowers elect not to make a payment which is what the program was designed to offer: keep more of your cash for retirement. The reverse mortgage does not have to be repaid until one of three things occur: the last remaining borrower or eligible non-borrowing spouse passes away or permanently leaves the home, or if the homeowners sell the home, or fail to meet the loan obligations that include paying property taxes and insurance, and keep their home maintained.
It allows for negative amortization. How does that work? With a forward (aka traditional) mortgage, you have a principal balance which over the life of the mortgage is paid down through equal payments typically over a period of 15 or 30 years. This is called amortization. Since a reverse mortgage does not require any mortgage payments and assuming that no payments are made by the borrower, the mortgage balance grows over time due to the interest and insurance charged from the loan. This process of increasing the principal balance over time is called negative amortization.
It is protected by non-recourse. What does that mean? It means that the reverse mortgage is only secured by your home and not your personal assets. In the event that the loan balance rises further than the value of the home at the time the home is sold, the borrower or the borrower's estate will never be obligated to pay the lender more than the loan balance or the current value of the home, whichever is less. When a loan is called due and payable, the reverse mortgage borrower or the borrower's estate only needs to repay the lessor of either the loan balance or 95% of the home's appraised value at that time.
Check back at some of our previous postings to learn more about the reverse mortgage, or for more information on reverse mortgage and other related topics contact:
www.reversemortgagecertifiedprofessional.com
It has more flexibility. Really? A reverse mortgage gives you the option to decide whether you would like to make a monthly payment or not. Most borrowers elect not to make a payment which is what the program was designed to offer: keep more of your cash for retirement. The reverse mortgage does not have to be repaid until one of three things occur: the last remaining borrower or eligible non-borrowing spouse passes away or permanently leaves the home, or if the homeowners sell the home, or fail to meet the loan obligations that include paying property taxes and insurance, and keep their home maintained.
It allows for negative amortization. How does that work? With a forward (aka traditional) mortgage, you have a principal balance which over the life of the mortgage is paid down through equal payments typically over a period of 15 or 30 years. This is called amortization. Since a reverse mortgage does not require any mortgage payments and assuming that no payments are made by the borrower, the mortgage balance grows over time due to the interest and insurance charged from the loan. This process of increasing the principal balance over time is called negative amortization.
It is protected by non-recourse. What does that mean? It means that the reverse mortgage is only secured by your home and not your personal assets. In the event that the loan balance rises further than the value of the home at the time the home is sold, the borrower or the borrower's estate will never be obligated to pay the lender more than the loan balance or the current value of the home, whichever is less. When a loan is called due and payable, the reverse mortgage borrower or the borrower's estate only needs to repay the lessor of either the loan balance or 95% of the home's appraised value at that time.
Check back at some of our previous postings to learn more about the reverse mortgage, or for more information on reverse mortgage and other related topics contact:
Rick R. Rodriguez
Certified Reverse Mortgage Professional (CRMP)
NMLS# 473353
Toll Free (877) 500-0454
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