How does The New Reverse Mortgage protect my home?
The simple answer is you do, by purchasing a reverse mortgage insurance policy. This policy is part of your closing costs when obtaining The New Reverse Mortgage.
Unlike traditional mortgage insurance which is protection for lenders, The New Reverse Mortgage insurance is protection for you and your heirs. It is backed by the full faith and credit of the US government. Your loan terms will not change regardless of how long you live in your home and regardless of economic conditions. All you have to do is remain in the home, keep your property taxes and homeowner’s insurance current and maintain the property.
How does the New Reverse Mortgage work when I leave my home?
When the subject of reverse mortgages comes up and seniors begin discussing the pros and cons, the topic of “what happens to my home when I pass away?” is the subject at the top of the list. Unfortunately, all of this discussion (and the internet) has led to a great deal of misinformation and confusion.
How will it protect my home if my home is worth more than I owe?
If your home is worth more than the balance of your loan, then your rights are unchanged from what they would be with a traditional “forward” mortgage.
A Reverse Mortgage generally does not have to be repaid until the last surviving homeowner on title permanently moves out of the property or passes away. The heirs will have a decision to make and that decision is the same whether there is a Reverse Mortgage or a forward mortgage.
The estate can repay the balance of the reverse mortgage loan and keep the home or sell the home to pay off the balance. If the equity in the home is higher than the balance of the loan when the house is sold, the remaining equity belongs to the heirs/estate, minus whatever costs are incurred with the sale.
How will it protect my home if I owe more than my home is worth?
Before the most recent housing bubble, families in California would never have believed such a thing to be possible. We now know it can happen and a Reverse Mortgage gives you a safety net in the event of another economic downturn.
In the event your home is “underwater” (you owe more than it’s worth), your heirs will have two options.
- They can elect to “turn in the keys” (deed in lieu of foreclosure) to the bank. If they choose that option the estate is not liable if the home sells for less than the balance of the reverse mortgage loan. No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage. This will save your estate thousands of dollars in legal fees if it were a true foreclosure.
- If someone in your family would really like to keep the family home they can purchase the home for 95% of the appraised value at the time. Of course the purchaser will need to qualify for whatever financing is available at the time but it is an option not available if you have a traditional forward mortgage.
Whichever option your heirs choose, they will have 30 days from the time the lender receives notification of your passing to let the lender know their choice. You will also get time for the estate to go through probate (if required).
Another good reason to include your family members when deciding to take out a Reverse Mortgage.
The New Reverse Mortgage isn’t for everyone…but it could be!
If you’re still wondering if a Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.