Can someone explain Reverse Mortgage Loans

[Mark Davis]

Hello. I heard these mentioned and wanted to know exactly they were. Can someone please explain what a reverse mortgage loand is?

[Bob McGee]

It is a rising debt decreasing equity mortgage for persons over 62. Commonly insured by FHA, it involves no monthly payment and the deferred interest accrues to the balance. There are no income or credit qualifications. The property must be the primary residence. The loan comes due when all owners pass away, the home is sold or ceases to be the primary residence. In the event that the loan balance should exceed the value of the property there is no personal liability for the borrower or their estate. The money can be disbursed to the borrower lump sum, as a line of credit, of in monthly payments, or any combination of the three. The loan to value (LTV) depends on age and starts at about 50% to allow for the growth of the loan balance. The loan can be used to refi an existing home or purchase a new one including new construction. Most property types are eligible. Usually there can be no subordinate debt. All equity remaining in the home at the time of sale goes to the owner or the estate. Borrowers are given a choice of of a ARM or Fixed Rate program. Loan fees and closing costs are strictly regulated by FHA and do not vary greatly from one lender to the next. Not all FHA lenders offer Reverse Mortgages because processing and underwriting is quite a bit different.