Over the last couple of weeks, I've received comments from readers (please do comment on these posts and ask questions if you like) that indicate to me there is still a thirst for the basics of the reverse mortgage product, namely how it works and why it's so important to seniors. While we could go into a great deal of content and detail, space will allow me to say just so much here today.
A reverse mortgage is, simply a mortgage product available to folks age 62 and over. It gives them access to a percentage of the value of the home's value. Truly a mortgage in reverse. The amount of proceeds available is determined using a formula that incorporates the following data: current value of the home as determined by an appraisal, age of the youngest borrower (minimum age 62) and the current interest rates.
The proceeds can be used for practically any purpose. The only requirement for proceeds is that any mortgages or other liens against the subject property are paid off at closing. No payments are due on a reverse mortgage as long as at least one borrower occupies the home as the primary residence.
The homeowner is responsible for payment of real estate taxes, homeowners insurance, and association or condo fees.
Proceeds from a reverse mortgage can be taken several ways:
Lump sum: all available funds are disbursed at once.
Line of credit: line is established and borrower can request amounts in any amount up to the available limit. The Federal Housing Administration's Home Equity Conversion Mortgage line of credit includes a growth feature, giving the borrower access to more funds from the line of credit over time. (Incidentally, over 90% of all reverse mortgages originated are the HECM product.)
Monthly check: a set amount is paid to the borrower each month. Then there is a tenure option, where payments continue as long as the property is occupied by at least one borrower and a term option, where payments continue for a set number of years and then cease.
A combination of all of the above is also permitted. For example, if a senior has a small mortgage to pay off (lump sum) and then requests a line of credit, that is how the loan will be structured. The payment plans can usually be changed at the request of the borrower. The lender may charge a small administrative fee to do this.
All borrowers considering a reverse mortgage are required to complete a counseling session with a Department of Housing and Urban Development-approved counseling agency prior to obtaining the loan.
Why is the reverse mortgage so important to seniors today? Many are facing foreclosure, or having to return to work just to make a mortgage payment. Rising real estate taxes, prescription medication co-pays, and other living expenses can be a drain on their monthly income, the only source of that income for many being Social Security.
We have only scratched the surface here, so if you are considering entering the reverse mortgage business, check us out at
Sue Haviland is a reverse mortgage consultant in Baltimore and the founder of Reverse Mortgage Success, a leader in the training and education for originators around the country in the rapidly growing reverse mortgage arena. Ms. Haviland has worked in the lending industry since 1981. She has been originating reverse mortgages for the last six years and still originates loans every day. She has helped hundreds of families all over the country in the last several years. She also shares her knowledge of this market in presentations before the Women's Council of Realtors, Mortgage Bankers Association, National Association of Professional Mortgage Women, and SRES - Senior Real Estate Specialists, Brian Sacks' Insider Seminars, as well as the public. She is a Certified Senior Advisor and is active in many professional organizations. Sign up for her free seven-part mini-course at
