Reverse Mortgages 101: A White Paper For Professionals 4/18/2008
What is a reverse mortgage?
A reverse mortgage is a special and different kind of loan that is easy to obtain if you are at least 62 years of age and own your own home, condo (PUD) or co-op (only ina few jurisdictions). A reverse mortgage converts a portion of the value (equity) of ahome into instant cash. The pool of money that is created by a reverse mortgage can bereceived by a senior homeowner(s) in a variety of ways.One of the key aspects to a reverse mortgage is that the client is NOT required topay monthly mortgage payments. (The borrower can make voluntary payments shouldhe/she desire). Additionally, there is NO personal liability attached to the loan. A reversemortgage loan is non-recourse. The home serves as collateral just as with any loan.One other key feature to a reverse mortgage is that there are
no income, assetor credit requirements
to obtain the loan
.
That means you could have a client that haspoor credit, no income and no other assets besides a home with equity and the clientcould obtain a reverse mortgage to raise money for a variety of needs.The concept of reverse mortgages is easy to understand once properlyexplained. Have your clients picture themselves shaking hands with their home. “I’vetaken care of you all these years,” they say. The home replies, “It is now my turn to takecare of you.” This is the essence of the program. The home is simply returning its love.
Who can use reverse mortgage?
Age “62” is one of a few “magic numbers” you will see in this material. Eachhomeowner must be at least 62. If one spouse is 62 and one is not, then the “couple”can not obtain such a loan.On the other hand, should the younger spouse come off title, then this reversemortgage borrower can proceed. However, his wife would still have to be counseled (Iwill cover counseling later) and will have to sign a disclosure form. Pay close attentionto the following example:Let’s take a case where the husband and wife are 68 and 60 respectively andeach owns the home. If the husband dies first, the reverse mortgage loan will becomedue and payable. (Remember, in order to get this reverse mortgage, the 60 year oldspouse has to agree to be taken off the deed. Also remember, when 2 or more peopleof reverse mortgage age own the home, the loan becomes due upon the death of thesurvivor. Other maturity events include sale and the home is no longer the primaryresidence of any of the borrowers.
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