How do Reverse Mortgages Work?

Written by Posted On Tuesday, 24 May 2016 09:44

With a regular mortgage, a homeowner pays a set amount each month to the lender. However, with a reverse mortgage, the lender pays the homeowner money each month. Reverse mortgages will take some of the home’s equity, turning it into cash payments that go to the homeowner that is typically tax-free.

As long as the homeowner lives in the home, the money doesn’t need to be paid back. However, in the event of their death, the home is sold or they move out, the spouse, children or estate will have pay the loan back. This generally means selling the home to ensure this happens. Homeowners get to keep the home’s title.


Rather than a monthly mortgage payment being paid, the homeowners attain an advance on some of the home equity. Most times the money isn’t taxed, and it won’t affect any Medicare or Social Security benefits a homeowner receives. 

Repayment on the loan is started in three key instances where the last surviving home owner has


·           passed away

·           sold the home

·           moved out of the primary residence

There are certain cases where a non-borrowing spouse can stay in the home.

If you’re a homeowner looking at a reverse mortgage, for whatever reason, there are a number of things you should consider before going this route:

You Must Pay for The Costs That Relate to the Home

While a reverse mortgage lets you keep the home’s title, you’re liable for every other expense: taxes, insurance, maintenance, utilities, etc. Failure to pay taxes, keep up the maintenance on the home or have homeowner’s insurance may lead to loan repayment.  Therefore, you may be asked to set-aside a certain amount of money to pay the insurance and taxes while you have the loan.  The amount set aside will decrease the available funds attained.

What Can Your Spouse Expect?

If you get an HECM loan in your name only, your spouse may be allowed to continue living in the home even after you’ve passed away so long as they continue paying the taxes and insurance and keep the property maintained. However, the spouse will receive no money since the loan was not in their name as well.

What Can Your Heirs Expect?

Since reverse mortgages use the home’s equity, your heirs may not have as many assets. The majority of reverse mortgage have a non-recourse clause, meaning you or your estate is not allowed to owe more than the home’s value when the loan is due and the home has been sold.  The HECM gives your heirs the option to pay the loan of and keep the property. However, you don’t have to pay more than the home’s appraised value.

For additional information about reverse mortgages or to get answers to your questions, and to attain the free Information Guide, be sure to visit www.SolanoMortgage.Info.


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