Chapter 10:Mortgage Loans in Reverse

Chapter 10 provides a detailed overview of reverse mortgages and whether this product makes sense for you.

10-1 Introduction.
A so-called “reverse mortgage” is a special type of home loan that allows borrowers to convert a portion of the equity in their home into cash and then not have to make ongoing monthly payments on the loan…

10-2 How Reverse Mortgages Work.
In a traditional mortgage loan, the lender advances a large sum of money upfront that the borrower uses to buy a home or refinance an existing home loan. The borrower then pays the mortgage loan down over time with monthly payments. The traditional (“forward”) mortgage loan balance starts out large and is paid down over time.

In a reverse mortgage, the borrower already owns the home, and owes very little or nothing on it. Under the terms of the reverse mortgage, the borrower will receive some combination of upfront and/or ongoing monthly (or periodic) payments from the lender. The reverse mortgage loan balance starts low and grows larger over time…

10-3 Reverse Mortgage Loan Options.

10-3-1 Categories.
When considering whether a reverse mortgage is right for you, be aware that there are three general categories with differing features, benefits and costs. Depending on your circumstances, one category may meet your needs better than the others. Categories are shown in Table 10-1…

10-3-2 Disbursement Options.

• Tenure
• Term
• Line of Credit…

10-3-3 Amount You Can Borrow.
The amount you can borrow with a reverse mortgage depends on several factors, including:

• The lesser of the appraised value, purchase price of your home, or the FHA mortgage limit of the HECM lending program
• The age of the youngest borrower or eligible non-borrowing spouse
• Expected interest rate at the time of origination
• An assessment of your willingness and ability to pay property taxes, homeowner’s insurance, and HOA fees as they come due
• The disbursement option and type of reverse mortgage you select…

10-3-4 Costs Involved.
Like forward mortgages, reverse mortgages can have high levels of fees and charges. Upfront origination fees are capped by HUD for HECM loans; proprietary loans generally do not have such caps…

10-4 Reverse Mortgage Loan Program Requirements.
Depending on the category of program you choose, there will be program requirements that you must meet in order to qualify for a reverse mortgage loan. In this section, we will focus on HECM program requirements. Single purpose and proprietary program requirements will follow a similar structure, but will have differing elements and values…

10-5 Assessing Whether a Reverse Mortgage is Right for You.
Although you may qualify for a reverse mortgage, only you can determine if getting a reverse mortgage is right for you. You need to critically evaluate your motivations, your situation, the ramifications of getting the loan, and alternative options…

10-6 Shopping for a Reverse Mortgage.
If you are considering obtaining a reverse mortgage loan, you should shop around. Decide which program and payment option might be right for you. That will likely depend on your purpose for obtaining the loan…

10-7 Your Right to Cancel.
With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. This is known as your “right of rescission.” …

10-7-1 Report Possible Fraud.
If you suspect a scam, or that someone involved in the transaction may be breaking the law, let the counselor, lender, or loan servicer know…

10-8 Bibliography for Chapter 10.