Understand Key Points From Government Guides

reverse mortgageA little known-fact about reverse mortgages is that they are highly regulated by the federal government. Given the immense amount of misinformation surrounding these loans, this might come as a surprise. In reality, the Consumer Financial Protection Bureau (CFPB) provides a lot of helpful information about reverse mortgages, so anyone who is interested in them will have an ample amount of resources at their fingertips. In particular, the CFPB has a great guide called You have a reverse mortgage: Know your rights and responsibilities. It is quite long and detailed, so in today’s blog, Family Home Loan Texas breaks down and describes the key concepts included in the guide. We know that there is a lot to take in about reverse mortgages, so we are here to make it easier for you to fully understand.

Understanding The Basics

The CFPB guide begins with reverse mortgage basics and requirements. For starters, you must be 62 or older. The house must be your primary residence, which means that you must spend at least six months a year there. Typically, your lender will require you to certify that your home is still your primary residence. This is usually done through a letter or a postcard sent by mail. Similarly, if your husband or wife is an “eligible non-borrowing spouse,” you will also have to certify that you are still married. 

Another major requirement is that you must continue paying property charges. These are what any homeowner has to pay and they include, property taxes, homeowners insurance, any fees, and any other obligations you have. As with all financial obligations, you must continue paying everything on time. You also need to maintain your property and keep it in good standing, as your lender doesn’t want the property value to decrease too much. This is also important on your end because if you want to sell your house at any point, you want to get as much value from it as possible.

What Happens If You Want To Sell?

Typically, you only have to pay back a reverse mortgage when you cease living in the house or it is no longer your primary residence. This is one of the biggest benefits of this loan; most people who take out a reverse mortgage want to spend their retirement in the same home they’ve lived in for a long time, and this is a great way to continue doing so while also receiving helpful funds. With that said, some people want to downsize or stop living in the home for other reasons. When this is the case, you will need to pay back the loan. Another major benefit is that you will never have to pay back more than what the home is worth. If you happen to sell your house for more than the balance of the loan, you can keep any additional money. If the sale of your house doesn’t cover the outstanding loan balance, your mortgage insurance will cover the rest. Again, this means that you will never be on the hook for more money than the market value of your home.

What Happens If You Pass Away?

A major point of confusion about reverse mortgages stems from people wondering what happens to their homes if they pass away before the loan balance is paid off. If you have a non-borrowing spouse, they may be able to qualify as an eligible non-borrowing spouse and take on the terms of the mortgage. This is great because they can continue living in the home that you both shared together. 

The guide also discusses what happens if you have heirs, which is another point of confusion — and also a source of misinformation. Because you retain the title to your home the entire time you are in the home, you are free to leave it to your heirs. Once it passes on to them, they can decide to stay in the house if they pay off the remaining balance, or they can sell it, pay off the balance and then keep any additional money from the sale. Overall, because you do retain full ownership of the house the whole time, you can think of it as you would with a traditional mortgage.

Other Helpful Information

This is where the guide ends, but it is still helpful to understand more information. Another thing many potential borrowers want to know is how they can receive their money from the loan. There are four ways to get these funds. For starters, you can receive it as a lump sum. This means you get all of it at once. This requires a fixed-interest rate but is very helpful for those who need to pay for large expenses — like hospital bills, major renovations, or anything else that typically needs a single large payment. You can also receive your money in regular installments, as a line of credit, or as a combination of these. These have an adjustable interest rate and are helpful if you have recurring expenses you would like to cover. It is important to note that with a line of credit, you are only charged interest on the money you use. This makes it a good choice if you mostly want the security of knowing the money is available if you need it.

Ultimately, a major benefit of reverse mortgages is that it gives eligible borrowers the financial freedom to live their retirements on their own terms. They shouldn’t have to spend their 60s, 70s, 80s, and beyond worrying about their finances, and these loans help them achieve more flexibility. 

Contact Us For More Information About Reverse Mortgages

We encourage you to look through the guide above from the Consumer Financial Protection Bureau; it has helpful information that can help clear up any confusion you have about these loans. Their website, overall, is a great resource as well. For any other questions, we are here to help. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about a reverse mortgage loan and to receive a free, no-commitment consultation.