There are many journals and information booklets furnishing detailed reverse mortgage info. The web portals too provide information about the various facets of reverse mortgage loan products. Reverse mortgage info may be understood under the following categories.
Definition of reverse mortgage
Features of reverse mortgage
Eligibility criteria for reverse mortgage
Procedures of disbursing loan amount
Repayment of loan amount
Usage of reverse mortgage loan amount
Difference between forward or traditional mortgage programs and reverse mortgage programs
Reverse mortgage lenders
Effect of US subprime mortgage crisis on reverse mortgage market.
(I) Definition of reverse mortgage:
Reverse mortgage may be referred to as a mortgage loan, which is availed by borrowers from various reverse mortgage lenders spread across the country. The Federal Government insures some of the reverse mortgage products. The FHA or the Federal Housing Administration, a part of the HUD or Housing and Urban Development presides over the proceedings of reverse mortgage scheme.
(II) Features:
Reverse mortgage loan may be availed by borrowers who do not have to fear of losing their house while the loan is in the on going process. The borrowers retain the ownership right of the property mortgaged. They are not required to make any repayments while they are residing in the house. Also, the loan amount can never be more than the value of the house mortgaged.
(III) Requisites for availing reverse mortgage loan:
The first and foremost requisite is that the borrower(s) need to be retired and above the age of 62 years. They should be having their own house, which serves as security against the mortgage. They should have been living in the same house for at least 6 months.
Depending on the age of the borrower(s), the value of the mortgaged property and the area where the house is situated, the loan amount is disbursed. Also included in the determining factors does the rate of interest exist currently in the reverse mortgage market.
(IV) Procedures involved in disbursement of loan amount:
Essentially, the following procedures are required to be undertaken in the event a borrower intends to opt for a reverse mortgage loan.
Selecting a reverse mortgage professional
Understanding the needs of the individuals.
Applying for the loan
Counseling sessions
Getting the appraisal done. Appraisal is the process by, which a professional evaluates the value of the house against, which the loan amount would be availed.
The loan is approved
Disbursement of the loan amount.
(V) Repayment of loan amount:
The reverse mortgage loan amount need not be paid back in monthly installments. The amount may be repaid back under the following circumstances:
In the event the borrower(s) die
If the house is sold
If the ownership of the house is being transferred.
If the individuals intend to move to another locality.
In the first case, the heir of the borrower(s) repays the loan amount. The repayment may be done by selling off the house or by repaying on their own. If the price of the house is more than the loan amount, the excess is enjoyed by the successors. If there is a shortfall in fund for repayments due to the low cost of the house, the shortfall is met by the insurance firms. Paying in full prior to the expiration of the loan tenure is permitted.
(VI) Using the loan amount:
The proceeds of the reverse mortgage loan amount may be used for varied purposes depending on the needs of the individuals. The amount may be used for:
Repaying any other loan (refinancing)
For medical treatment
For regular maintenance (daily activities)
Repairing house or property
Paying taxes, fees and other associated charges while processing the loan
Holidaying
(VII) Forward mortgage Versus Reverse mortgage:
In case of forward mortgage, the loan amount decreases over time. In case of reverse mortgage, interest is compounded on the main amount over the years.
In traditional mortgage loans, monthly installments are required to be paid. On the other hand, in reverse mortgage repayment is done after the death of the borrower(s), due to relocation, transfer of rights.
Forward mortgage is characterized by “decreasing debt and increasing equity”. Reverse mortgage is characterized by “ decreasing equity and increasing debt”.
Costs associated with a forward mortgage are less compared to expenses related to reverse mortgage programs.
(VIII) Reverse Mortgage lenders:
There are a number of reverse mortgage lenders but ultimately they are there to do business. Most of the reverse mortgage lenders, comprising banking as well as non-banking lenders thriving in the reverse mortgage market extend quality and prompt service to the senior borrower. Nevertheless, there have been instances on the contrary. This was especially true for the less known ones. Hence, it is suggested that prior to finally settling down for a reverse mortgage professional, a thorough investigation is desirable.
(IX) US subprime mortgage crisis:
Owing to the US subprime mortgage crisis, many reverse mortgage-lending companies altered their operational activities. The US subprime mortgage crisis resulted from the misappropriation of funds and non-compliance with mortgage norms especially by the mortgage brokers in USA. The ripple effects of the subprime mortgage crisis spilled over to other nations as well affecting various sectors of the economy.