What happens if the loan balance becomes greater than the value of the home?
The Home Equity Conversion Mortgage (HECM) is a non-recourse loan, which means that the borrower can never owe more than what the house is worth. As HECM borrowers, your parents pay a mortgage insurance premium to the U.S. Department of Housing and Urban Development (HUD). They, in turn, guarantee that the borrower will never owe more than the value of their home when the loan becomes due and payable.
What are the risks my parents would be taking in receiving a reverse mortgage?
A reverse mortgage doesn’t affect Social Security or Medicare benefits. To find out if it impacts other federal or state assistance or medical programs, contact your reverse mortgage lender, tax attorney, or counseling agency. Your parents are guaranteed to live in their home the rest of their lives (as they continue making Home Insurance and Tax payments), their payouts are guaranteed for life, and any remaining equity is passed on to their heirs.
Are there restrictions on how my parents spend their money?
Your parents can spend their money any way they want. Borrowers have used reverse mortgages to pay for grandchildren’s educations, vacations, new cars, medical expenses, home improvements or to eliminate debts. The money can be used for anything they desire.
Is there any information that provides what all of the fees will be?
The lender is required to provide your parents with the Total Annual Loan Cost, or “TALC” disclosure, which is required by the Federal Reserve Board. The TALC displays the total transaction costs over the projected life of the loan, which will allow your parents to see all costs related to the reverse mortgage.
Who gets the home after the last borrower passes away?
Up to one year after the last borrower passes away, the heir(s) can refinance the home into their name, or, they can sell the home and split the proceeds. Just as with a traditional loan, any remaining principal or interest due would need to be paid out of the proceeds of the sale of the home. If the amount owed is more than the home is worth, the heir(s) can choose to purchase the home for 95% of the homes current value.