Important aspects of reversible mortgages
They are financial instruments aimed at the elderly population.
They consist of loans that are guaranteed with the residential property of the person that is not repayable, unlike traditional loans.
That is, the person will not have to pay a monthly payment for the loan. Instead, the financial institution uses the accumulated value of the property (the “equity”) to convert it into money.
The money given to the person is freely available, which means that the debtor can use it for whatever they want (pay debts, medical or medical bills, home renovations, etc.).
When the person who owns the house dies, his heirs will have the option to buy the residence or not.
How does the financial institution provide the money?
The person who qualifies can receive the money in the following ways:
- A single payment for the total amount of the “equity”;
- monthly payments for the amount and time agreed upon; or
- establish an accessible line of credit for when you need to withdraw.
What are the requirements to apply for a reverse mortgage?
- Be 62 years or older.
- Be the person who owns the home and that this is the main residence.
- The mortgage loan must be in balance or about to be paid off and free of liens.
- The person must attend a financial counseling orientation by an entity or before a certified professional.
What obligations are assumed when signing a reversible mortgage?
- Pay continuously and on time housing contributions (eg CRIM).
- Keep active -up to date- the home insurance policy (known in English as hazard insurance).
- Keep maintenance fees or any other similar responsibility up to date.
- Keep the house in optimal conditions.
- Live in the house and not leave it.
If these obligations are not met, the financial institution may declare the reverse mortgage payable. In this case, you would have to pay the entire loan. If you do not make the payment, you are exposed to foreclosure.
When do you have to pay the reverse mortgage?
Apart from the breaches mentioned above, the mortgage must be paid off when the debtor person:
- pass away,
- move or
- sell the primary residence.
Can the debt become greater than the value of the property?
Yes. Given the current real estate crisis, where the value of the property has drastically decreased, the debt may be greater. At the time the mortgage is payable, the owner or the heirs of it must pay the full balance of the same.
Are reverse mortgages a benefit of the federal government?
No. _ It should be clear that this instrument is a mortgage loan that binds the debtor and his heirs and that the role of the federal government is to guarantee them through the federal Housing Department (HUD) and regulate them through the Housing Administration. Federal (FHA).
Will the money you earn be a source of income until you die?
Depends. If you choose monthly payments or a line of credit and you move or default on the terms of the loan, the financial institution may discontinue the payments or close the line of credit and make the mortgage due and payable. On the other hand, the life expectancy may exceed the amount of money available in the loan, so you would not be receiving payments after the amount guaranteed by the “equity” of your home is exhausted.
Is there any real risk that I will lose my home?
If you fail to comply with any condition of the loan, such as not paying the property taxes or not keeping the insurance policy active, among others, the financial institution could demand the full payment of the mortgage. If you do not pay it, said institution may seek to foreclose, which may result in the loss of your home.
In cases of marriage or cohabitation, if the property is the private property of one of them and he dies, the person who did not take the loan must be informed of the consequences of not paying the full amount of the loan, such as possible eviction or execution of the property. We invite you to visit our content on protections for widows who are not co-sig