Reverse Mortgages: How Do They Work?
~ By Paulette Wisch, Universal Lending Corporation ~
A reverse mortgage is a loan against property that turns a portion of the value of the home into spendable money and requires no monthly payments. Customers cannot get access to full value of the home but get a percentage based on age, appraised value and rate. The older the client, the more they get. All existing loans on the property have to be paid in full from reverse mortgage proceeds (plus other assets if necessary). Any funds left over after existing liens and fees are paid can be distributed to the client in any way they choose. If the home is free and clear the customer would have access to all funds and can use the proceeds at their discretion. They can take funds as a monthly payment like Social Security, for term or tenure, in chunks for the bigger expenses that come up, or a combination of both. As funds are distributed the loan balance is increasing and interest is being added to balance. Proceeds from a reverse mortgage are tax free as they are considered loan proceeds by the IRS. A reverse mortgage does not affect Social Security or Medicare and this product is also available for people on Medicaid.
Customers do not give up title to their homes, and they can sell and move at any time. They can leave the property to their heirs and if the parents pass away; the heirs can sell the home and would get remainder equity. The heirs could also re-finance the reverse mortgage and keep the property. When clients no longer live in the property as a principal residence the lender requires the loan be paid.
This is a non-recourse loan and clients are guaranteed, because of FHA mortgage insurance, they will not leave a debt to the heirs or estate. All customers have to be at least 62, live in the home as a principal residence, pay taxes, insurance and HOA if applicable. Taxes and insurance can be escrowed based on customer request and funds available. Currently there are no requirements for income or credit, but FHA may be changing those guidelines in the near future.
Paulette Wisch, Reverse Mortgage Specialist, 26 years reverse mortgage experience.
She can be reached at 303-759-7354 or pwisch@ulc.com
