What is a reverse mortgage? There are many myths and misconceptions on just what a reverse mortgage is, so let’s first talk about what it is not.

The reverse mortgage of old, the one you hear about from your neighbors, your best friends, or a family member, is not what the reverse mortgage is today!

It used to be that the bank would not only charge interest on the loan amount but also took a large percentage (often up to 50%) of the remaining equity in your home after the loan was paid off. That meant your heirs would receive a lot less than expected after the loan was paid off.

This was not fair, and so the Federal Government stepped in, and in 1989 changed the guidelines so the banks could not take more than the accumulated interest on the loan, and all the appreciation of the property would belong to the heirs.

So, what really is the reverse mortgage of today? A reverse mortgage is a loan for borrowers 62 years of age and older that converts some of their home’s equity into cash. The cash can be used for anything you like. Pay down debt, take a trip, or even invest the proceeds to create a higher income. The unique benefit is the borrowers do not have to make monthly mortgage payments.

The new reverse mortgage program is called HECM; it stands for Home Equity Conversion Mortgage. Today, the seniors are completely protected from such practices by the Federal Government, and so are their heirs. When the last borrower moves out of the house, passes away, or sells the house, the loan is due, just like any other mortgage. What is due the bank is just the original loan balance plus the interest accrued over the time that the seniors have had the use of the reverse mortgage. All remaining equity belongs to the seniors’ estate and their heirs. The bank does not retain any equity in the home.

In fact, since the seniors own the home, they can sell it anytime they wish, and move to another home; if they financially qualify, they can purchase another home using the Reverse for Purchase Program.

One of the greatest benefits of the program, as I see it, is the security it offers married seniors because the loan is on both lives (unlike any other mortgage), and as long as one senior/owner occupies the property, the loan is in full effect. This means that should something happen to one spouse, nothing happens to the loan, and therefore, nothing happens to the remaining spouse!

I see this as a great feature because if a senior passes away or goes into an assisted living or nursing home, in many instances the other spouse loses an income but still must continue to pay the current mortgage, but now with only having the one income. In many cases, the remaining spouse cannot make the payment; eventually, they lose the home to foreclosure or are forced to sell it.

This cannot happen with a Reverse Mortgage since the loan is on both spouses’ lives. The only responsibility one has is to continue to pay the Real Estate taxes, homeowner insurance, any HOA fees, and maintain the property. That’s it. Stay in your home and live your life without the worry of having to make a monthly mortgage payment, and with the security of having a roof over your head.

Ask your American Retirement Advisor if this may be right for you. We may be able to refer you to a reputable Reverse Mortgage Specialist. There are a lot of mortgage brokers out there that do not specialize and know just enough to be dangerous.