If you’re considering a reverse mortgage, you’ve likely read a handful of short articles on them, or Home Equity Credit Mortgage (HECM). You probably have a sense of what a reverse mortgage is and what it is not. So you read longer more detailed articles and meet with a lender, only to find yourself in a sea of words that leave you swirling. Like any type of contractual agreement in America, reverse mortgage has its own language to give clear definition to the acting agencies, the building blocks involved and the rights and responsibilities of all parties involved.
The following will help you speak the reverse mortgage language, starting with the basic overarching terms.
A Reverse Mortgage is a loan taken in lieu of home ownership. It gives cash advances to the borrower and does not require repayment until the last borrower passes away or leaves the home permanently. The loan is capped by the value of the home at the time of repayment. The acronym HECM means Home Equity Conversion Mortgage and is the only program of its kind backed and insured by the Federal Housing Administration.
A Mortgage refers to a legal document. The document makes a home available to a lender to repay a debt. A Non-Recourse Reverse Mortgage is a home loan where the amount owed cannot exceed the home’s value at the time of loan repayment. This type of reverse mortgage is FHA insured. Another type of reverse mortgage is called a Proprietary Reverse Mortgage, which have grown quite uncommon. Proprietary reverse mortgages are privately insured by the banks and mortgage companies that offer them. They are not subject to all the same regulations as HECMs, and for this reason borrowers should ensure they understand these loans thoroughly and beware of scams. They are also occasionally called “jumbo” reverse mortgages.
The value of a home, which implies subtracting out any money owed on it is called Home Equity. And Home Equity Conversion is the process of turning the equity into cash. It allows the one receiving to stay in their home without making monthly payments while there, or still alive. It takes what is due to the borrower wrapped up in the years of paying for their home and makes it available immediately.
For seniors 62 and older, regardless of credit or income (until April 27 2015), a reverse mortgage is an option. Utilizing the equity of the asset you already have can help fund the retirement of your dreams – or just your retirement. You will always retain the title to your home and will live mortgage payment free. How you decide to use this asset is up to you, and a common misconception is that your home will be lost after you pass. With proper education via required third party counseling and retirement planning, this does not need to be the case.
Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming. Click here to contact Jan and learn if reverse mortgage is right for you.