Reverse Mortgage Basics
History of Reverse Mortgages - Use your home to stay in your home!
The Reverse Mortgage Program also known as a Home Equity Conversion Mortgage (HECM) was created for homeowners who are 62 or older by the Housing and Community Development Act of 1987, as part of the U.S. Department of Housing and Urban Development (HUD).
What is a Reverse Mortgage (Home Equity Conversion Mortgage):
The HECM FHA insured reverse mortgage can be used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. The loan, commonly known as HECM, is funded by a lending institution such as a mortgage lender, bank, credit union, or savings and loan association.
How do I qualify?
You do have to:
- be a homeowner 62 or older
- be living in the home as your primary residence
- have equity in your home
- be able to pay your taxes and insurance on the property
You don’t have to:
- be debt-free
- own your home free-and-clear
- sell your home
- give up title
- make monthly mortgage payments
This sounds too good to be true. How is this possible?
Your home’s appraised value, and the amount of built-up equity you have in it, is used as collateral for a Reverse Mortgage loan. That makes it a low-risk loan for the lender, and explains why qualifying is so easy for the borrower. In a sense, you’re reversing the flow of money that you’ve been investing in your house all these years, and using it to increase your monthly income, hence the name Reverse Mortgage.
How much does a Reverse Mortgage cost?
Many of the same costs associated with a regular mortgage apply to Reverse Mortgages. In most cases these costs are capped and may be financed as part of the loan, so that you incur little out-of-pocket expense. Remember though, that you still will have monthly property tax and mortgage insurance payments to make, which have nothing to do with your Reverse Mortgage loan.
How much money can I get?
The amount you can borrow depends on your age, the current interest rate and the appraised value of your home. Generally, the more valuable your home, the older you are, and the lower the interest rate, the more you can borrow.