Stan Kassan is a Licensed Reverse Mortgage Specialist serving the entire United States. Please telephone with your questions at 800-397-0197, or use our contact page.

Understanding A Reverse Mortgage

Reverse Mortgage Information

The Housing and Community Development Act of 1987 established a special loan for homeowners who are 62 years or older. The Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) monitor and supervise all reverse mortgage activity in the United States, establishing the rules and requirements.

What is a Reverse Mortgage?
A reverse mortgage is a loan which converts your property's value into income paid to you in either a lump-sum or in a multi-payment schedule. You do not make monthly mortgage payments to repay this loan, but instead repayment occurs when you move out of the home (there are exceptions allowing a reverse-mortgage holder to vacate to a new property that is approved). Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to you or your heirs. You can never owe more than your home's value.

The rules for a Reverse Mortgage are:

* You must live in the home as your primary residence. * Make necessary home repairs. * Pay your property taxes.

Requirements for Borrower:
* Be 62 years of age or older * Must continue to pay the property tax and maintain the property in good condition. * Occupy the property as your principal residence * Participate in a consumer information session given by an approved HECM counselor

The amount of Reverse-Mortgage available is based upon:

Financial Requirements

Property Requirements
Your property must meet FHA standards:

The Reverse-Mortgage Program
If you are a homeowner age 62 or older and own your home or have only a small mortgage balance remaining, and are currently living in the home, you are eligible to participate in FHA's reverse mortgage program. There are currently five FHA-approved plans that pay money to you:

* Tenure - monthly payments of equal amounts paid to you as long as at least one borrower lives and continues to occupy the property as a principal residence. * Term - equal monthly payments for a fixed period of time. * Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted. * Modified Tenure - combination of line of credit plus scheduled monthly payments for as long as you remain in the home. * Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

The FHA allows the payment to your plan to be modified during the course of the life of the reverse-mortgage.

Amounts that can be borrowed
The rules covering amounts to be borrowed are related to your age, current interest rates, loan fees, and the appraised value of your home. There are a limited number of reverse-mortgage loans available in the United States, although these numbers have been expanded recently.

The more valuable your home is, the older you are, and the lower the interest, the more available for you to borrow. If there is more than one owner, the age of the youngest owner is used to determine the amount you can borrow. For an estimate of the amount that is possible for your property situation, consult our online mortgage calculator.

Summary
A reverse mortgage is different from an ordinary home equity loan. A FHA reverse mortgage does not require repayment as long as the home is your principal residence. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to you or your heirs. You can never owe more than your home's value. If the sale of the property does not satisfy the amount owed to the lender, the FHA pays the difference. The FHA collects an insurance premium for the purpose of covering shortfalls, the premium is 2 percent of the maximum claim amount that may be borrowed plus a 0.5 percent annual amount.