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Are reverse mortgages safe?

Posted on: 26th Mar, 2004 03:55 am
When you take out a reverse mortgage, you remain the owner of the home just as in any traditional mortgage. So, you are still liable to pay the property taxes, homeowner insurance and making home repairs. In case you fail to pay them off, the lender may demand repayment of the loan.

Is there any chance of default?


Reverse mortgages are quite safe as there's no chance of default because you aren't making monthly payments. And the loan needs to be paid off by your heirs when you die. This can be done by selling or refinancing the home. But the home value has to exceed what you owe. Otherwise, the heirs can simply pay off the debt and retain the home.

Can the lender claim more than property value?


Moreover, when the lender sells off property in order to get back the money he has invested, any extra proceeds exceeding the home value is handed over to the borrower or his heirs. However, it may happen that the sale proceeds aren't enough to satisfy the debt. In such a case, the lender cannot claim more than what the property is valued at the time of its sale. This is because reverse mortgage is a non-recourse loan. So, the lender may not come after your income and assets or ask you heirs to pay off the remaining balance.

Thus, reverse mortgages are quite safe as there are no chances of default and the lender won't come after you and claim more than the value of your property.

Related Articles:
Reverse Mortgages - How seniors tap equity for extra cash

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what is reverse mortgage and why it is good?
Posted on: 01st Oct, 2005 03:26 pm
Hi Arnold,

A reverse mortgage is a home loan that does not require to be repaid as long as a consumer occupies the property. As in the case of other mortgages it does not require monthly payments and enables to convert the home equity into cash.

Here, the interest rate is not really important to the people taking a reverse mortgage since they won't be paying off the loan. That's because a reverse mortgage, as its name implies, lets homeowners who are aged 62 or older take equity out of their houses without having to sell their property or repay the money.

With most mortgages, the focus is on the interest rate whereas with a reverse mortgage, the focus is on the value of the house. Reverse mortgages can give seniors the financial ability to lead an easier and comfortable life.


The main benefits of a reverse mortgage are -
  1. A borrower does not require an income to qualify for reverse mortgage. His credit history is also not verified before approving the loan. Here the amount of loan is dependant on his age, the value of the property, interest rates and closing costs of home loans in the neighborhood of the borrower.

  2. As long as the borrower or any co-owner occupies the property, there is no need of any repayment.

  3. A borrower needs to pay off his pending debts before he can avail a reverse mortgage. But there are lenders including the state or local government agencies who may allow him to repay the previous mortgage after he pays off the reverse mortgage when required.

  4. The amount received as reverse mortgage loan is not considered as income and hence the Internal Revenue Service does not charge any taxes on it.
Hope this information will help you.

Regards,
Blue
Posted on: 01st Oct, 2005 04:17 pm
I have provided my grandmother approx. 52K over the past 14 years as a reverse mortgage. I currently have a lien against her house for said amount. My grandmother recently passed away and I am not the executor of her will. My Uncle is trying to sign the house over to his son, who has no financial claim to the property. Can he do this? Can a title be transferred while a lien is in place?
Posted on: 16th Dec, 2005 09:10 am
Hi Anony,

Welcome to MortgageFit Forums.

I understand your confusion and the complicated nature of the problem. As for your uncle is concerned, he can't do this if the lien is properly documented.

As per the State laws a lien existing against a property must be paid off before the title of the property can be sold or transferred. I shall suggest you to consult an attorney with your papers.

Feel free to ask if you have any more doubts.

God bless you.

For MortgageFit,
Samantha
Posted on: 16th Dec, 2005 11:05 am
What happens to the house after the borrower dies ?
Posted on: 27th Jul, 2006 06:28 pm
Hi,

The house will remain with the heirs of the borrower provided the reverse mortgage loan has been paid off. If the loan is not repaid, the lender will take over the ownership rights.

Regards,

Jessica.
Posted on: 27th Jul, 2006 08:49 pm
i am interested in availing. but no nationalised banks except PNB IS IMPLEMENTING IT.EVEN THIS BANK PROVIDES ONLY MONTHLY PENSION . THEREIS A PROVISION FOR LUMPSUM PAMENT FOR VARIOUS PURPOSES AS APPERD IN TIMES OF INDIA ON 16-06 2007 .HAVE THESE MODIFICTIONS BEEN COMMUNICATED/WHEN WILL OTHE BANS TAKE UP THIS SCHEME
Posted on: 07th Sep, 2007 04:15 am
The ICICI bank is studying the market currently and will launch reverse mortgage very soon. By June, 2007 the Bank of Baroda had intially planned to introduce the product within next 3 months, that is in September.

You can just contact the bank officials or the customer care department to know more about this.
Posted on: 07th Sep, 2007 05:06 am
Can my mother avail these loan on "Tenant Agreement"? Because these agreement has been made between "Owner-Developer-Tenant(Occupier)". This agreement are under court consent. Why developer is not preparing "Sale Agreement"
Posted on: 07th Jul, 2008 05:21 am
No, your mother has to be the owner and the property should be her primary residence. Properties with tenant agreement will perhaps not qualify. Check out with your local bank.
Posted on: 14th Jul, 2008 02:59 am
I've been living with my father in law for 8-9 years. He took out a reverse mortgage and recently was sent to jail. What happen to the house and how could I gain owneship?
Posted on: 19th Dec, 2008 07:32 pm
Hi CBo

A query similar to your has been answered in the following link:
http://www.mortgagefit.com/reverse/gain-ownership.html

Please take a look at it. I hope it will help you.

Thanks.
Posted on: 20th Dec, 2008 12:40 am
my parent had reverse mortage and he passed away he had borrowed 161,000. the appraisal said the home is worth 230,000. does the heirs get the rest of the equity that is in the home?
Posted on: 05th Mar, 2009 04:17 pm
Hey nanafana,

I guess, you are selling off the property in order to pay off the reverse mortgage dues. Yes, after the reverse mortgage is paid off, the heirs to the property will get the rest of the equity from the property.
Posted on: 05th Mar, 2009 10:46 pm
we took a reverse mortgage and our home was appraised at about $109,000. We had a line of credit for $60,000. There is about $1500 left in the line of credit. We badly need a new roof and $1500 will not cover it. Can we get anymore on our reverse mortgage?
Posted on: 07th Apr, 2009 11:20 am
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