Of the top concerns on my customers minds what happens to the home and remaining equity after death must be near the top of the list. Somehow, misinformation regarding this subject is rampant.
A reverse mortgage lender loans money, typically anywhere from 50% to 75% of homes value, to the borrower. The borrower uses that money as he or she sees fit.
Interest accumulates on top of itself and the loan to the senior borrowers. This is how reverse mortgage lenders make money. Only upon death and/or sale of the home is the loan typically required to be repaid to the lender.
Reverse mortgage lenders use a calculation, based upon value, age, and interest rates to determine the amount to lend. This calculation creates a recognized safe position for banks.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
At death the home is typically willed to the heirs. The heirs are given roughly a year to sell the home. If it takes longer the lender normally allows extensions.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
Of course the home always gets sold and the mortgage company gets their fair share of the proceeds. They are not, as many people still believe, entitled to all of the remaining proceeds.
If any equity is left over the heirs get it as outlined in the will. It is a common misconception that the reverse mortgage lender is entitled to any of the remaining equity.
Sooner or later a borrower lives fifteen years longer than expected, the actuarial tables explode, and the mortgage exceeds the value of the house. No problem.
Reverse mortgages are known as non-recourse loans. This means if more is owed that home can actually sell for to repay the bank, the heirs or borrower are not on the hook for the difference.
Contrary to common reverse mortgage folklore there is a sense of fairness in this business. The equity belongs to its rightful owner.
A reverse mortgage lender loans money, typically anywhere from 50% to 75% of homes value, to the borrower. The borrower uses that money as he or she sees fit.
Interest accumulates on top of itself and the loan to the senior borrowers. This is how reverse mortgage lenders make money. Only upon death and/or sale of the home is the loan typically required to be repaid to the lender.
Reverse mortgage lenders use a calculation, based upon value, age, and interest rates to determine the amount to lend. This calculation creates a recognized safe position for banks.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
At death the home is typically willed to the heirs. The heirs are given roughly a year to sell the home. If it takes longer the lender normally allows extensions.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
Of course the home always gets sold and the mortgage company gets their fair share of the proceeds. They are not, as many people still believe, entitled to all of the remaining proceeds.
If any equity is left over the heirs get it as outlined in the will. It is a common misconception that the reverse mortgage lender is entitled to any of the remaining equity.
Sooner or later a borrower lives fifteen years longer than expected, the actuarial tables explode, and the mortgage exceeds the value of the house. No problem.
Reverse mortgages are known as non-recourse loans. This means if more is owed that home can actually sell for to repay the bank, the heirs or borrower are not on the hook for the difference.
Contrary to common reverse mortgage folklore there is a sense of fairness in this business. The equity belongs to its rightful owner.
About the Author:
Bone-up onthe HECM in California, also known as a reverse mortgage, here. Numerous questions get answered on the California reverse mortgage in this educational site.
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