What is a reverse mortgage?

 


What is a reverse mortgage? The most common type of  reverse mortgage, the Home Secured Convertible Mortgage (HECM),  is a unique type of mortgage available only to homeowners over the age of 62. 

 Similar to traditional mortgages, reverse mortgages allow homeowners to borrow money using their home as collateral. As with traditional mortgages, getting a reverse mortgage loan retains ownership of your home. Unlike traditional mortgages, reverse mortgage loan borrowers do not pay their monthly mortgages. When the borrower vacates the premises, the loan is repaid. Each month, interest and fees are added to the loan balance, growing it. With a reverse mortgage loan, homeowners are obligated to pay property taxes and homeowners insurance, as well as maintain the property as their primary residence. 

 The homeowner`s debt to the lender increases–not decreases–over time with a reverse mortgage loan. This is because the loan sum is increased each month by interest and fees. As your loan balance increases, your home equity will decrease. 

 Reverse mortgage loans are not an unlimited source of funding. This is a type of loan where the amount of money you borrow plus interest and fees is equal to your monthly increasing loan balance. Ultimately, the homeowner or his heir will have to repay the loan. This is usually done by selling the home. Reverse mortgage scams should be avoided.  Scams against contractors 

 Contractors approaching you about obtaining a reverse mortgage loan to cover the cost of home repairs should be avoided. Perhaps this is a hoax. Avoid being coerced into obtaining a reverse mortgage loan.  Scams directed against veterans  The Veterans Administration (VA) does not offer reverse mortgage loans. Certain mortgage advertisements falsely promise veterans exceptional prices, imply VA approval, or advertise a “no payment” reverse mortgage loan in order to entice older Americans anxious to remain in their homes. Reverse mortgages have a cooling-off period of 3 days. 

 Most reverse mortgages allow you to cancel a transaction within 3 business days of the end of the loan  without penalty. This is called the "right to withdraw". Cancellation must be done in writing to the lender. Send the letter by registered mail and receive a  receipt certifying the date the letter was sent and the date the lender received the cancellation notice. Be sure to keep a copy of all discussions with the lender. After cancellation, the lender will refund the amount spent raising the reverse mortgage loan within 20 days. If you think you have a reason to cancel your loan after a three-day period, seek legal advice to determine if you are eligible to cancel. This article relates to the most common type of reverse mortgage loan, the Home Secured Convertible Mortgage (HECM).

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