A reverse mortgage is a unique loan that enables individuals over 62 years of age to access the equity they have in their home. Typically, homeowners can access their equity in one of three ways, downsizing, borrowing against the home, or selling.
Reverse mortgages apply to the second practice of borrowing against the home. It is different from a straightforward loan in that the funds now travel in the reverse direction from the lender to the homeowner.
Under a reverse mortgage, the homeowner does not make payments to the lender as is typical with straightforward mortgages. In this situation, it is the lender who pays the homeowner in either a single lump sum payment, equal monthly payments, term-limited payments, as a line of credit, equal monthly payments plus a line of credit, or term payments plus a line of credit.
Reverse mortgages are intended to provide much-needed cash flows for senior citizens whose wealth is tied up in the value of their home.
As with a conventional mortgage, the value of the home is the collateral for the loan. The loan reaches maturity and is due for payment in full in the following circumstances.
- The borrower dies.
- The borrower moves away from home for more than one year.
- The borrower sells the home.
Basically, the loan becomes due whenever there's a scenario of change of ownership of the home. The loan also matures when the homeowner is away from home for more than 12 months because the law presumes that the house will fall in a state of disrepair with the homeowner away for extended durations of time.
Because the appraised value of the house is what the lender holds as security if the house becomes run down, they face a higher risk of loss on the investment.
Cases Where a Homeowner May Wish to Exit or Reverse a Reverse Mortgage
It is the home owner's responsibility to pay home insurance, interest on the loan, loan fees, and maintain the home. If this proves to be too much of a financial burden for the homeowner, they may consider exiting the mortgage.
Reverse mortgages may complicate matters if you wish to leave your home to your heirs, as this is a transfer of ownership and the only way your heirs will be able to keep the home is by paying off the loan in full. If they are not in a position to pay off the loan, the home will then be sold to a stranger to cover the mortgage debt.
Additionally, if you live with someone else, you as the primary borrower cannot move out and leave the other person in the home. This would also result in the required repayment of the loan. For these reasons and others, a reverse mortgage can complicate matters and may make a homeowner rethink the decision to take out this type of mortgage.
If you, as the primary borrower, have concerns about leaving your home to your children or another heir or need to move away from home for medical treatment or any other reason, you must exit the reverse mortgage or make arrangements to pay off the loan. Under the terms of a reverse mortgage, the primary borrower must reside in the residence.
How to Reverse a Reverse Mortgage
If you find yourself unable to satisfy the conditions of a reverse mortgage or you simply have a change of heart, consult with one of our reverse mortgage specialists here at NHL Lending. They can give you all of the requirements you need to follow.
The Right to Rescind
Homeowners have three business days after signing reverse mortgage paperwork to change their mind and cancel the transaction. The only have to alert the lender in writing within the three days, and the lender will cancel all loan documents and return all fees.
This is typical and well within your rights as the consumer to make an educated decision and have peace of mind.
Beyond the Three Business Days
After the three days have lapsed, the best way to reverse a reverse mortgage is by paying the loan balance in full.
As a homeowner, you are allowed to sell the house and use the proceeds to pay off the reverse mortgage. Any funds over and above that are yours.
Another option for exiting a reverse mortgage in Fort Lauderdale is by refinancing the mortgage of the home and converting the reverse mortgage into a conventional mortgage.
If you have any questions about obtaining a reverse mortgage or if you are looking to change your mortgage type, contact our friendly and professional team at NHL Lending for assistance with the best options for your life and budget.