 | Robert Cobb is Managing Broker/Owner of CENTURY 21 Cobb Realty in Pittsburg, KS. He is a life-long resident of Pittsburg and a PSU graduate with a BS in Business Administration. He has been in the real estate field for 23 years. He is currently a KAR Director and the President of the Pittsburg Board of Realtors. |
Real Estate
2011-09-29 14:35:13
What is a reverse mortgage?
Q: Can you explain the reverse mortgage? Who is eligible?
A: A reverse mortgage is a loan for senior homeowners that use a portion of the home’s equity as collateral. This type of loan was invented decades ago to help seniors facing economic hardship access the equity in their homes. More than 660,000 reverse mortgages were issued between 1990 and 2010, according to the AARP.
Home equity conversion mortgages, or HECMs, are the most common reverse mortgage. The loan is federally insured and offers certain borrower protections. Seniors who own their homes or have low mortgage balances can take out reverse mortgages and convert their equity into cash as a lump sum, monthly payment or line of credit, or a combination of all three.
In most cases, loan does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has a set amount of time, generally less than a year, to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is inherited by the estate. Since the Federal Housing Administration insures the loans, the estate is not personally liable if the home sells for less than the balance of the reverse mortgage.
To be eligible, you must be 62 or older, own the home free and clear or nearly so and the home must be free of liens. There are no income or credit requirements, and the loan has no monthly payment. Instead, the lender pays the homeowner, and the reverse mortgage balance rises as a result, accruing interest and fees.
Not all home types are eligible, however. Mobile homes must be three years old or newer, built on a permanent foundation, and her land must be owned. Some townhome and condominiums may also be ineligible.
While the reverse mortgage can be a lifesaver for some seniors, they can also be complex and involve some risk and expense. We will cover those risks next month.
