As a reverse mortgage specialist you might imagine I get slaughtered with questions from customers. One of the biggest concerns is what happens to the equity in the home after the borrower passes on.
Borrowers getting reverse mortgages can expect their lender to allow them to pull cash out of the equity of the home equal to 50% to 75% of the formal valuation of the house.
Interest accumulates on top of itself and the loan to the senior borrowers. This is how reverse mortgage lenders make money. Only upon death and/or sale of the home is the loan typically required to be repaid to the lender.
Reverse mortgage lenders use a calculation, based upon value, age, and interest rates to determine the amount to lend. This calculation creates a recognized safe position for banks.
The algorithms tell the lender it is making a calculated gamble to loan a borrower X amount of money. Lenders, like insurance companies know the deal, and way more often than not there will be equity remaining.
At death the home is typically willed to the heirs. The heirs are given roughly a year to sell the home. If it takes longer the lender normally allows extensions.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
It will eventually sell. When the home sells the bank is repaid the original principal amount loaned plus accumulated interest over the years. That is all the bank is entitled to receive.
If any equity is left over the heirs get it as outlined in the will. It is a common misconception that the reverse mortgage lender is entitled to any of the remaining equity.
Every so often more will be owed than the home is actually worth. In this event the heirs are in a safe zone.
The HECM or reverse mortgage is a non-recourse mortgage. This means the most the bank is entitled to receive is the sale price of the home minus closing costs. If more is owed, too bad for the bank.
Contrary to common reverse mortgage folklore there is a sense of fairness in this business. The equity belongs to its rightful owner.
Borrowers getting reverse mortgages can expect their lender to allow them to pull cash out of the equity of the home equal to 50% to 75% of the formal valuation of the house.
Interest accumulates on top of itself and the loan to the senior borrowers. This is how reverse mortgage lenders make money. Only upon death and/or sale of the home is the loan typically required to be repaid to the lender.
Reverse mortgage lenders use a calculation, based upon value, age, and interest rates to determine the amount to lend. This calculation creates a recognized safe position for banks.
The algorithms tell the lender it is making a calculated gamble to loan a borrower X amount of money. Lenders, like insurance companies know the deal, and way more often than not there will be equity remaining.
At death the home is typically willed to the heirs. The heirs are given roughly a year to sell the home. If it takes longer the lender normally allows extensions.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
It will eventually sell. When the home sells the bank is repaid the original principal amount loaned plus accumulated interest over the years. That is all the bank is entitled to receive.
If any equity is left over the heirs get it as outlined in the will. It is a common misconception that the reverse mortgage lender is entitled to any of the remaining equity.
Every so often more will be owed than the home is actually worth. In this event the heirs are in a safe zone.
The HECM or reverse mortgage is a non-recourse mortgage. This means the most the bank is entitled to receive is the sale price of the home minus closing costs. If more is owed, too bad for the bank.
Contrary to common reverse mortgage folklore there is a sense of fairness in this business. The equity belongs to its rightful owner.
About the Author:
Bone-up onCalifornia reverse mortgage here. Many questions answered regarding the California reverse mortgage informational website.
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