What is a Reverse Mortgage?
A reverse mortgage is a loan that requires no repayment as long as the homeowner continues to live in the home. Those who are at least age 62, live in their home and either own it outright or have a mortgage balance, may qualify for a reverse mortgage. Essentially, it allows you to access a portion – but not all – of the equity in your home without having to sell. Unlike a home equity loan, you don’t have to repay the loan as long as you continue to reside in the home. You will remain responsible for utilities, taxes and insurance coverage.
The only reverse mortgage insured by the U.S. federal government is called a Home Equity Conversion Mortgage (HECM) available through a Federal Housing Administration approved lender. Univest Bank and Trust Co. is one of the few banks in the area that offers the FHA HECM program.
In a reverse mortgage, the loan is repaid when the last surviving borrower passes or no longer lives in the home for 12 consecutive months or more. If heirs want to keep the home, they will need to pay off the reverse mortgage loan balance. In the event the heirs cannot afford to buy the home, they will likely have to sell it to pay off the loan. The loan is federally insured and if the balance is more than the home is worth, the FHA will accept a 95 percent payment of the home’s value.
Recently, there have been a number of major changes to the HECM program. The basics are still the same – the amount of benefit available to homeowners is based upon the youngest person’s age, value of the home and current interest rates. The older the homeowner, the more benefit available.
In order to support the continuation of this FHA loan program, it has been necessary to make changes to the eligibility rules, fees for the loan and documentation required for approval. In essence, the borrowers have to pass a financial assessment which requires a more comprehensive review of the homeowners’ income, credit history and tax payment history. In some cases, the FHA may require payment of property taxes and insurance to be paid through the program for a certain period of time. These additional steps help ensure that the borrowers will be able to meet their continuing financial obligations.
The FHA also now limits the amount of money that can be withdrawn immediately as well as during the first 12 months of the loan. There are some exceptions, but in most cases, borrowers are eligible to withdraw up to 60 percent of the gross amount of funds available to them.
Who Should Consider a Reverse Mortgage?
The program is designed for homeowners 62 and older who wish to remain in their homes, but find it increasingly difficult to do so due to rising costs for things such as healthcare, utilities, taxes, home maintenance, etc. In many cases, the homeowner does not want to sell their home, but these costs are pushing them out.
Univest Bank and Trust Co. is an Equal Housing Lender