The Facts on Reverse Mortgages

If you or your spouse recently turned 62 or older and own your home, you may be reciving offers from lenders about obtaining a Reverse Mortgage. A Reverse Mortgage is aptly named - it is the exact opposite of a traditional mortgage.

In a traditional mortgage, a lender offers you a loan in order for you to obtain your house and you, in turn, agree to pay that loan down in manageable monthly increments. Since the lender is putting himself as risk by allowing you to borrow such a large sum of money, interest is added on to every month's payment. When you pay your mortgage for the month, you are paying down on your mortgage loan and essentially becoming a step closer to owning your home.

In a reverse mortgage, you already own your home but are older, retired, and would like extra funds each month. When you enter a reverse mortgage, your lender will send you monthly checks. These funds are being taken out of the equity of the house, so the amount of you owe will grow over time. Interest will also be charged to the total balance of your loan. Additionally, most reverse mortgages have variable rates instead of fixed, which means the rate of interest you will be charged will change depending on market conditions. As with any mortgage, a reverse mortgage is a major financial agreement that should not be entered into without careful examination of all contracts and financial documents by an attorney.





Reverse mortgages decrease the equity available in your house, since your lender is removing funds from the worth of the property and returning them to you. When you and your spouse pass away or move from the house, it will be sold and the proceeds paid back to the lender. As a result, obtaining a reverse mortgage will mean that your heirs will receive less assets from your estate. Another important thing to consider is that when you still retain the deed to your house when you obtain a reverse mortgage. This means you, as a homeowner, are still responsible for all property taxes, insurance, and utilities for the house.

Reverse mortgages are often an affordable and simple way to receive extra funds to supplement your income during retirement or pay medical bills all while keeping your home.

If you are seriously considering a Reverse Mortgage, you should be aware that these loans come in two major types.

The first type is a HECM, or Home Equity Conversion Mortgage. HECMs are created and backed by the the U.S. Government Department of Housing and Urban Development. According to the National Reverse Mortgage Lenders Association, HECMS currently make up 99% of all Reverse Mortgages. One thing to remember about HECMs is that although these loans are backed by a U.S. Government department they are originated from private lenders. Each HECM homeowner is charged a uniform insurance fee of 1.25% of the total loan balance every year. The second type is a Proprietary Reverse Home Mortgage. These are uninsured private loans that are often used for higher value homes.

Before you make the decision to enter into a Reverse Mortgage, you should consult a real estate attorney. As I have outlined here, Reverse Mortgages can have far reaching financial implications that not only affect your assets but your heirs'. You should always have a legal professional who can carefully examine the details of ytour mortgage paperwork and ensure that your financial well being is protected.

If you are interested in obtaining a Reverse Mortgage and would like to talk to an attorney, feel free to call my office at 718-317-5007.