A reverse mortgage is a specialized loan that is available to homeowners that are 62 years or older. It allows them to convert part of the equity in their homes into cash. The loan is called a reverse mortgage because the lender makes payments to the borrower instead of making monthly payments to a lender, as with a traditional mortgage.
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home, he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance, and homeowners association dues (if applicable).
The product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction how reverse mortgage proceeds can be used. Whether it’s to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, pay off existing debts, cover property taxes, or prevent foreclosure, there are no restrictions.
Home Equity Conversion Mortgage (HECM)
A HECM is not a government loan. It is a loan issued by a mortgage lender, but insured by the Federal Housing Administration, which is part of HUD.
Currently, HECMs make up most reverse mortgages offered in America. HECMs come with rules and regulations that include a requirement that the borrower receive third-party counseling.
Proprietary Reverse Mortgage
Proprietary reverse mortgages are privately insured by the mortgage companies that offer them. They are not subject to all the same regulations as HECMs, but most companies that offer proprietary reverse mortgages emulate the same consumer protections that are found in the HECM program, including mandatory counseling, as a standard best practice.
Proprietary reverse mortgages are sometimes called “jumbo” reverse mortgages, because they are taken out (?) on higher-valued homes. The maximum loan limit on a HECM is $822,375.So, if you own a home worth significantly more than this than you may be able to get more funds from a proprietary reverse mortgage.
A counseling session can take place face-to-face or by telephone. Counselors have been trained to effectively deliver the required information in either situation. The session should generally last 60 minutes but can take longer if necessary.
Reverse mortgage counseling is not therapeutic or psychological counseling. It is most comparable to tutoring in that it delivers extra help in understanding something that can seem complicated and overwhelming due to all the details. The counselor will go over much of the same information that is provided to you by your lender.
Prior to being counseled and depending on who you contact first, you will receive an information packet from either the counseling agency or the lender. This information packet will include the following materials: