What Is A Reverse Mortgage?
A reverse mortgage loan is a financial instrument that allows seniors access a portion of the equity. Seniors must be a minimum age 62, live in their own home, and have equity in it. The important distinction between a reverse mortgage and a conventional mortgage is that there are no principal or interest payments required on the home while the borrower occupies the property and complies with the loan terms. In the case of two borrowers being on title, should one permanently leave the property due to a death or hospitalization, the other borrower continues to remain in the home. Repayment is only required if the borrower sells the home, moves out of the property for more than 365 days, or fails to otherwise comply with the loan terms (such as paying property taxes and insurance).
In a conventional mortgage, the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases by the amount of the principal included in the payment, and when the mortgage has been paid in full, the property is released from the mortgage. In a reverse mortgage, the home owner is under no obligation to make monthly mortgage payments, but is free to do so with no pre-payment penalties. The line of credit portion operates like a revolving credit line, so a payment in reduction of a line of credit increases the available credit by the same amount. Interest that accrues is added to the mortgage balance. Additionally, with the line of credit option comes a feature known as the creditline growth rate, a particularly attractive feature not found in a traditional Home Equity Line of Credit. Funds left or returned to the line of credit are subject to the creditline growth rate which allows borrowers to gain on the unused funds. So, for example, if the borrower has been approved for $100,000 and uses $25,000 of that amount, they will accrue growth on the $75,000 balance. Assuming that the line of credit is growing at 6% annually, then the line of credit would increase to $79,500.
As with any mortgage, title to the property remains in the name of the homeowners, to be disposed of as they wish - so long as they continue to comply with the loan terms such as paying property taxes and insurance. As with a conventional mortgage, the title is encumbered by the security interest the bank has in the reverse mortgage. If a borrower does not make full monthly payments to cover the interest, that interest is capitalized (added to the principal). In the event that the interest accrues to a point that the amount owed is less than the home's value the borrower may stay in the home and FHA will cover any loss to the lender or borrower.
Here are some of the questions you may be asking yourself, "How do i get a reverse mortgage in Suffolk or Nassau County, New York"? or "I live in Queens or Brooklyn what are my options for a reverse mortgage"? Another common question may be, what are the advantages?.
A reverse mortgage lien is often recorded at a higher dollar amount than the amount of money actually disbursed at the loan closing. This recorded lien is at times misunderstood by some borrowers as being the payoff amount of the mortgage. The recorded lien works in similar fashion to a home equity line of credit where the lien represents the maximum lending limit, but the payoff is calculated based on actual disbursements plus interest owing. Long Island reverse mortgage company, Five Star Reverse Funding has several years experience and services clients in Nassau & Suffolk County as well as Brooklyn and Queens. Contact us today for a free consulation.