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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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Hi

I don't think it would be possible for you to get anymore on the reverse mortgage. But you can surely talk with the lender regarding this and see whether they can help you with this in any way.
Posted on: 08th Apr, 2009 07:50 am
What happens to the house after the borrower dies ?

Somebody will inherit the house, usually the children. If they want to keep the house, they'll need to pay back the Reverse Mortgage lender. If they don't want to keep it, they'll let the Lender foreclose on it.

If they want to keep it, they have 3 choices:

1. Refinance the Reverse Mortgage with a Forward Mortgage.
2. Refinance the Reverse Mortgage with another Reverse Mortgage
3. Pay the Reverse Mortgage lender with cash

A lot of my clients get a life insurance policy when they get their Reverse Mortgage, to enable the heirs to pay back the Reverse Mortgage lender without having to refinance the property.

There is no real defined timeframe to pay back the lender, but they'd like it to happen as soon as possible. The lender understands the heirs need time to make a decision, and if they're going to sell the house, that takes time too. As long as the heirs are reasonable, the lender will be reasonable too.

A girlfriends Dad passed and he had a Reverse Mortgage, and her sister was managing the Estate and she shouldn't have been in charge because she was really disorganized. After 12 months the Lender told her they would start foreclosure proceedings if she didn't get serious and aggressive about selling the house.
Posted on: 03rd Jul, 2009 10:57 am
>>Can we get anymore on our reverse mortgage?

Anybody can refinance their existing Reverse Mortgage with another Reverse Mortgage, and pull out additional cash. However, the refinance works exactly like a traditional refinance and only makes sense if the home has increased in value.
Posted on: 03rd Jul, 2009 11:02 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?

The loan will become due and payable after he completes his 12th month in jail. You can purchase it from him, pay off the Reverse Mortgage and keep the house.
Posted on: 03rd Jul, 2009 11:33 am
My mother-in-law is considering getting a reverse mortgage. She doesn't bring in enough money per month to make it and needs a new car (her's is 20 Years old). She has a life insurance policy. My husband and I are not concerned with keeping the house after her death. We want her to live comfortably without any worry, but don't want the financial burden of paying the house off. Can we just let the lender take possession of the house at that time, or will we have to apply her life insurance money toward the house?
Posted on: 10th Aug, 2009 10:46 am
Hi,

Your mother-in-law does not need to make any monthly payments for the reverse mortgage. She'll not be required to pay it off, unless she vacates the property or sells it to someone else. After her death the mortgage company will take over the possession of the property and sell it off to recover the loan amount. So, you'll not have to bear the burden of repaying the mortgage.
Posted on: 11th Aug, 2009 02:53 am
Reverse Mortgages are very safe. You own your home. The Deed stays in your name and in YOUR possession. FHA guarantee the payments that are made to you. They also guarantee you can stay in your home as long as you like, and you will never owe more than your house is worth.
Posted on: 11th Aug, 2009 06:32 am
how can i be absolutely sure i'm not dealing with a scam or swindled by a underhanded company?????
Posted on: 22nd Dec, 2009 09:58 am
zoomzoom, you need to have an attorney on your side, for one thing. but dealing with a long-term, well-recognized banking name ought to suffice. don't do business with "Loans by Joe" or "I Have Money For You Mortgage Company" - that goes without saying. check with your friends, family, etc. to see who they consider to be a reputable company, seek the advice of your Pastor, your lawyer, your insurance agent, etc.

You're bound to find out that not everything in this life is a scam. yes, there are plenty, but if you ask the right questions and align yourself with the right people, you'll be fine.
Posted on: 22nd Dec, 2009 01:37 pm
>>how can i be absolutely sure i'm not dealing with a scam or swindled by a underhanded company?

By getting it through a hugh well respected financial institution. Immediately I think of Bank of America and Wells Fargo. Neither of them can afford to have their name tarnished and are extremely compliant with every aspect of the Reverse Mortgage process.

I started working for the Reverse Mortgage division of Bank of America on Monday, and I'm amazed at how strict they are compared to the "Broker" side of the Reverse Mortgage business. You can't go wrong selecting either of those two companies, and I suggest getting quotes from both of them, comparing them, and going with the company you feel the most comfortable with.
Posted on: 24th Dec, 2009 03:30 pm
can
the borrower pay off the mortgage before he dies, say within two to three years after the initial start of the reverese mortgage ?
Posted on: 04th Jan, 2010 07:03 pm
that's certainly an option bubba, but i wonder about the value of doing so...unless there's an expected windfall coming in a couple of years and the reason for a reverse mortgage now is simply to take care of shorter-term needs.
Posted on: 04th Jan, 2010 07:44 pm
>>can the borrower pay off the mortgage before he dies, say within two to three years after the initial start of the reverese mortgage?

Yes, and without any prepayment penalties. If it's an open end program (one with an adjustable interest rate) I suggest paying all of it except $1.00. That'll leave the Reverse Mortgage open, in case you want to access the equity again in the future. That way you won't have to pay the loan fees again if you want to get another Reverse Mortgage in the future. If it's a closed end program you don't have that option - you'd have to pay if off entirely.

If you know you're only going to be in it 2-3 years, there are much better options, because the fees are high when a Reverse Mortgage is originated. However, if you've already been in it 2-3 years, and then received an inheritance, or something similiar, it may make sense to pay it off (or down to the last dollar).
Posted on: 05th Jan, 2010 08:17 am
great suggestion, raymond, to pay it down to a dollar if the loan is a line of credit. it's something i hadn't thought about, and probably many others as well. thanks.
Posted on: 05th Jan, 2010 09:13 am
I have a reverse mortgage. The LTV is 80%. I contacted the lender recently to request a $10,000 advance, and was denied, because I did not have enough equity. I thought my equity was for use to pay high interest credit card, get a roof, etc. Why was I denied?

Also, a friend called me recently and told me a friend of theirs was losing their home because the value of the house became less than what was owed. Can that happen? She said to beware--I could lose my home.
Posted on: 26th Feb, 2010 05:53 pm
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