Reverse mortgages are to enable homeowners aged 62 and older to borrow against the equity in their home without having to make monthly mortgage payments as is normally required in a traditional mortgage or home equity loan.  In a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away.

If the balance due at settlement of the loan exceeds the value of the home, FHA insurance covers the difference.  FHA insurance also guarantees that the funds the borrower anticipates being available will be there for the borrower no matter what happens to the lender.

Reverse mortgages generally are used to cover the gap between income and living expenses, health care, home repair and maintenance or to avoid foreclosure.  However, the upfront costs for reverse mortgages have been very high.  Recently however, a number of lenders, beginning with Wells Fargo, have reduced their fees on a reverse mortgage by not charging a bank fee, monthly service fee or service set aside.

In an effort to reduce fees for a reverse mortgage even further, HUD will now offer a reverse mortgage (also known as Home Equity Conversion Mortgage or HECM) that will cost less upfront but will allow less borrowing.  Since the risk to FHA is less, then these HECM saver reverse mortgages don’t pay for mortgage insurance and therefore the upfront cost is less.

It is anticipated that more changes in the reverse mortgage area will be forthcoming.  Elder lawyers and seniors should be sure to stay up to date in this area.

Gabrielle L. Strich, Esq.

Call us with more questions at 732-438-3880 or visit our web site at www.strichlaw.com.

 

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