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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

Could our current reverse mortgage be paid off by another mortgage co. with my husband being added on to the title with with me on the new reverse mortgage..
Posted on: 25th Jan, 2011 02:34 pm

Yes, you will be able to pay off the existing reverse mortgage with a new reverse mortgage. If your husband is 62 years of age, then you can add him to the property deed and both of you can jointly apply for a reverse mortgage.
Posted on: 25th Jan, 2011 11:08 pm
>>Could our current reverse mortgage be paid off by another mortgage co. with my husband being added on to the title with with me on the new reverse mortgage.

Yes. And the FHA insurance premium will be prorated, resulting in reduced costs. And You shouldn't have to pay an Origination Fee or Monthly Service fee either. And some Reverse Mortgage Loan Officers, including me, will also pay all your non-recurring third party costs.
Posted on: 26th Jan, 2011 08:21 am
The lender making monthly payments to the homeowners sounds like a free loan. But the catch is they'll get the money out of your estate after you die, leave your home or sell.
Posted on: 26th Jan, 2011 10:31 am
It's not a "catch" at all. This is the entire idea behind reverse mortgages; that a homeowner of retirement or near-retirement age can use equity that has built up in a home to help supplement other sources of income such as pension or SS. As there are no repayments during the course of a borrower's lifetime for this sort of loan, it's only natural to expect that payback would come upon sale and/or death of the homeowner(s).
Posted on: 26th Jan, 2011 01:07 pm
an appraisal is based on recent sales of comp homes in my area. if most of the recent sales were due to distress or foreclosure, the sales prices are low, often 1/3 of previous sales. doesn't that destroy my own equity amount?

I heard that if i wish to draw cash out of the deal, i won't be able to get anything near my full equity because fha is going to pad their exposure and limit my available cash out to well below appraisal, which is already going to be low due to the foreclosure market.

in the end, maybe rm's aren't so good after all?
thanks, tomislooking
Posted on: 19th Jul, 2012 01:29 am
Hi tomislooking,

It should be remembered here that a property appraisal will depend upon the neighborhood comps. If the neighborhood comps have reduced in value, then your property value will automatically come down too.
Posted on: 19th Jul, 2012 11:22 pm
i have no heirs, will i still b able to get a reverse mortgage? there is no one that will want to repay the loan.
Posted on: 11th Dec, 2012 03:50 pm
Welcome Guest,

If the property if free and clear or if you have equity in the property, then you will be able to get a reverse mortgage. It is not mandatory to have heirs in order to get qualified for a reverse mortgage.
Posted on: 11th Dec, 2012 10:57 pm
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