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The first question is how do reverse mortgages work? Are they worth thinking. In this article I go through the basic features and will underline, that you have to take contact with an expert, who can tell you all the details.





The reverse mortgage loans are administered by HUD, US Department of Housing and Urban Development, and the program is called HECM, Home Equity Conversion Mortgage.





1. Who Can Qualify For A Reverse Mortgage?





Here are the basics about how do reverse mortgages work. You have to be a senior age 62 or over, you must own your home and have a low mortgage balance, which can be paid of at the closing of the reverse mortgage loan.





You must live in your home permanently and it can be a single family home or from 1 to 4 unit home. The condominiums and manufactured homes, which are approved by HUD and meet FHA requirements, are also accepted. Additionally you have to receive consumer information from a HECM counselor, before you make the agreement.





2. How Do Reverse Mortgages Work, The Back Payment.





The reverse mortgage loan will be paid back, when you move away permanently from the home or when you die. Because no monthly payments have been made, the principal plus interests will be covered with the sum from your permanent home sale. If the sum does not cover the whole sum, HUD will pay the difference. The lender cannot touch your other assets.





3. These Are The Payment Terms From HUD.





You can choose, whether you want the payment as equal monthly payments, the same sum every month during a fixed amount of months, as a credit line, as a combination of the credit line and the monthly as long as you live in the house or as a combination of the credit line and monthly payments for a fixed period of time.





4. How Do Reverse Mortgages Work? The Advantages.





With the reverse mortgage loan a senior can get the needed cash and the reverse mortgage does not require monthly back payments, so it is totally extra cash. Everything will be paid back, when the property will be sold.





The borrower stays as the owner of the property, so he will get the profits from the value increases of both the old and new homes and the lender cannot make the borrower to sell the house or to move away, even if the loan sum plus interests exceed the value of the property.


The HUD limit on reverse mortgages in US is $625,000. The older the borrower is, the more loan he gets. Usually the lenders estimate the property value lower than the amount of the reverse mortgage loan to minimize the risk.





5. What Are The Disadvantages Of A Reverse Mortgage Loan?





Because HUD is the administrator, all reverse mortgage costs are fixed. The reverse mortgage fees can be high and they are in many cases rolled into the loan and not paid upfront. You should actually avoid counselors, who sell consultancy to you and are not accepted by HUD.





The conversation with the legal advicers, family members and the financial advisers is worth doing. You have to calculate all the costs, all the benefits including the estimates of the future equity values. Maybe your heirs are also interested to participate.

Juhani Tontti, B.Sc., Marketing. When You Think The Reverse Mortgage For Home Purchase, Go Carefully Through The Pros And Cons Of The Reverse Mortgage Loans. Visit: How Do Reverse Mortgages Work

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