You maybe wondering how does a reverse mortgage work or more specifically When and How Repayment Begins With HECM Reverse Mortgage.

“Many seniors are confused since there is no repayment while they have the reverse mortgage, as to how they pay the loan back, after reading this you should have no more concerns as to how the repayment works.”

With a reverse mortgage you do not pay a monthly mortgage payment, instead based on your age and equity available the bank will give you a loan on your equity, which eventually will be paid back when you pass away or decide to sell the home.

The loan works such that the interest rate is added to the back of the loan – this means that since no payment are made – the payment portion is simply added back onto the loan with interest – as you owe more with time the home will naturally increase in value – this offsetting the costs of the loan.

Instead of you paying and seeing a decrease in the loan, this loan is reversed in the sense that the loan amount will increase according to the interest rates the banks are charging for the loan. The HECM reverse mortgage is federally insured so you will always receive your income ( lifetime monthly income if chosen) and will never have to worry about paying for more than what the home is worth.

“Reverse mortgages are non-recourse and if you happen to borrow more than what the home is worth in the future you are only responsible for the value of the home when paying it back. This protects your heirs from having to pay back more than the home is worth – if the home drops in value.”

In 2008, HUD came out with this clarification.  If you or your heirs go to sell the home and the property is not worth as much as the reverse mortgage balance, then the home can be sold to a third party for whatever the market will give, and you or your heirs will never be responsible to pay any shortfall. This is a true non recourse loan, and this is a great feature to have since you are in a position to receive lifetime income or a lump sum without having to worry where homes prices are in 10-20 years.

When Does Repayment Begin With Reverse mortgages

Repayment is triggered when the last surviving borrower dies, sells the home, or is considered to have moved out by not living in the home for one continuous year.

You are also responsible to maintain the property, pay for the homeowners insurance, and also property taxes with the reverse mortgage loan.

How is the loan repaid

Generally, lenders recover their principal and interest when the home is sold. Any remaining proceeds go to the borrower or his heirs. If the sales proceeds are insufficient to pay the loan amount, FHA pays the lender the amount of the shortfall. The insurance premiums paid by borrowers protect borrowers in the event of such a shortfall by guaranteeing that the total debt can never be greater than the value of the home if it is sold to repay the loan.

Your heirs will only pay back the current market value of the home if you borrowed to much or property values have gone down, this is a great feature which comes with the reverse loan.

Basics of Reverse Mortgages

Who Can Qualify For a Reverse Mortgage?

• must be at least 62 years of age
• own a home (primary residence)
• have equity in the property
• never have defaulted on any government debt

Reverse Mortgage Myths

• Myth The bank will own your home.
• Myth Your children will be held responsible for paying the loan back.
• Myth Reverse mortgage lenders take advantage of seniors.
• Myth You need good income and credit scores to qualify for reverse loan.
• Myth To qualify, you must own your home free and clear.
• Myth You won’t have any equity left in your home to leave for your heirs.
• Myth Once you get a reverse mortgage, you cannot sell your home.
• Myth You will see a reduction in your Social Security income.
• Myth Reverse mortgages are only for seniors that are poor.
• Myth Closing costs are way too expensive.
• Myth The loan is due and payable when the first borrower dies.