A reverse mortgage allows those who are 62 years of age or older to cash in on the value accumulated in their current home. The original loan taken to purchase the home must be paid in full, so that no money is owned on the home. This plan allows the owner to receive either a lump sum or monthly payments up to the appraised value of their home. This balance is paid off when the home is sold or when the occupants can no longer live there.
In case you need a visual image to help with this explanation, think of a balloon. With a typical loan, you begin with a full balloon and release air as you make each payment. This type of loan begins as an empty balloon which fills up each time you are paid your monthly payment by the lender.
The amount of money received through this type of payment system is dependent on the ages of the home’s occupants (the older they are, the more money they can receive), the appraised value of the home, the current interest rate, and the amount of upfront cost that need to be taken care of before the loan can be processed. There are very few out of pocket expenses associated with this type of loan since any insurance fees can be paid up front.
The most common type of reverse mortgage is an HECM – Home Equity Conversion Mortgage. It’s given through a private bank, but insured by the U.S. Government Department of Housing and Urban Development. Typically the borrower is charged 1.25% interest from the loan balance each year. This money will be used once the lender is no longer able to make a payment, or if the home doesn’t sell for enough to meet the loan.
Finding a Professional Lender
When you’re looking into a reverse mortgage, you don’t want to get information from the very first banker or loan manager that mentions the option. You’ll want to find a lender who is certified through the National Reverse Mortgage Lenders Association. This organization requires its members to pass some rigorous requirements before they’re allowed to be considered professional lenders. The requirements include:
– No less than two years of experience in this field
– Participation in closing at least 50 reverse mortgages
– At least 12 hours of continuing education courses related to this field
– Successful completion of NRMLA’s Ethics course
– A background check
– A three-hour exam
Once these requirements are completed, the individual is certified for up to three years. After that he will need to take an additional 12 hour of continuing education classes if he wishes to remain certified.