Reverse Mortgage

---

A reverse mortgage is a financial product primarily designed for senior homeowners (typically age 62 and older) who own their homes outright or have a significant amount of home equity. It allows them to access a portion of their home equity in the form of loan proceeds without the requirement of monthly mortgage payments. Instead, the loan is repaid when the borrower permanently moves out of the home, sells the home, or passes away.

Key features of a reverse mortgage include:

1. No Monthly Payments: Unlike a traditional mortgage, with a reverse mortgage, the borrower is not required to make monthly payments to the lender. The loan is typically repaid when the home is sold or the borrower's estate settles the debt.
2. Loan Types: There are different types of reverse mortgages, including Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration (FHA), and proprietary reverse mortgages offered by private lenders.
3. Access to Home Equity: Seniors can receive the home equity in various ways, such as a lump sum, monthly payments, a line of credit, or a combination of these options. The chosen payout method determines how the loan proceeds are received.
4. Requirements: Borrowers must meet certain eligibility criteria, including age, home ownership status, and the type of property. Additionally, they are required to participate in mandatory counseling to understand the terms and implications of the loan.
5. Interest Accrual: Interest accrues on the outstanding loan balance over time. This means the total loan amount can increase, potentially impacting the remaining home equity.
6. Homeownership Obligations: Borrowers are still responsible for property taxes, homeowners insurance, and home maintenance. Failure to meet these obligations could lead to default on the reverse mortgage.
7. Repayment: Repayment of the loan becomes due when the borrower permanently leaves the home. This can happen if they sell the home, move to a different primary residence, or pass away. The loan balance, which includes the borrowed funds and accrued interest, is repaid from the sale proceeds of the home.
8. Non-Recourse Loan: One important aspect of reverse mortgages is that they are typically non-recourse loans. This means that the borrower (or their estate) is not personally liable for repayment beyond the value of the home, even if the loan balance exceeds the home's value.
9. Counseling: Before obtaining a reverse mortgage, borrowers are required to participate in counseling sessions provided by approved housing counseling agencies. This is designed to ensure that borrowers fully understand the terms, costs, and potential implications of the loan.