What Does Non-Recourse Reverse Mortgage Mean?

One of the features of reverse mortgage that senior borrowers do not often understand is that it is often a “non-recourse loan.” This term is perceived negatively and brings unease to the homeowners when this is initially explained. The fact is that a non-recourse loan actually provides security to the borrower regarding the collateral.

The Property Secures Repayment

In a reverse mortgage, it is a requirement to withdraw the home equity from the primary residence where the borrower continually resides. Since the collateral is placed upon the home, it should be the only source of repayment and dissolution of the mortgage contract. As it is, the reverse mortgage converts into cash a percentage of the home equity based on its current fair market value. The allotment can be released monthly or as a lump sum, depending on the preference of the borrower. Even when the period of loan allotment has already ended, the borrower is still under no obligation to repay the loan and may continue to occupy the residence. However, the longer the borrower remains in the property, the higher the repayment dues would accrue.

The repayment will commence when the borrower and his family decides to vacate the home and proceeds to sell it. When the borrower passes away, the heirs would inherit the mortgage contract and they are given 12 months to occupy the property, wherein they can decide to continue the financial benefits of the reverse mortgage or to sell the house. The proceeds of the sold property is used to settle the full mortgage loan and the excess of the proceeds will go to the homeowner or his estate.

No Other Property Involved

In this case, it provides security for the borrower that no other property will be involved in the repayment of the loan. The loan amount is also based on the life expectancy of the youngest borrower. There are cases where the borrower has outlived his calculated life expectancy, especially with the advent of modern medicine and physical activities designed for older generation.

As it happens, the loan obligation dramatically increases and may exceed the property value. Real estate naturally appreciates in value, however there are instances wherein the property depreciates. This happens when the home is not properly maintained and taxes are not updated. Small home repairs such as plumbing and repainting when not immediately responded to can lead to bigger problems.

Puts Risk on Lender

When the loan obligation exceeds the home equity, the lender can not coerce the homeowner to sell his other properties, whether real or tangible, to cover the payment. The lender assumes the loss in case of depreciation in value; on the other hand, the borrower assumes the loss in case the property value increases.

A non-recourse set up sees to it that your reverse mortgage debt does not exceed the price of the property. Though essentially it may be worth more than the home, however as repayment discussion goes, nothing else should be used to settle the obligation or the lender has no recourse to extract repayment other than the collateral.

Benefits and Pitfalls of a Reverse Mortgage

Reverse mortgages are a great way for those over age 62 to get some extra money by using the equity in their home. They are able to use this money anyway they see fit, but there are some disadvantages to getting a reverse mortgage. First, you have to keep in mind that banks are out to make money. They are taking a risk by giving you a loan on your home, in turn they will charge you interest on your loan. On top of the loan interest there will be fees you have to pay, such as house appraisal and an organization fee. Usually these fees are added to the loan so you wont have to pay until you leave your home. Second, you are usually required to live at the house that you get the reverse mortgage on. A lot of contracts will have a certain number of days or months that you can live elsewhere before you are expected to pay the loan and interest back. This sounds great if you are planning on living in your home until you pass away, but think if you get sick and have to spend 18 months in a health care facility or with relatives... You may come out and discover that you have lost your house because you weren't living there while you were in the hospital. Third, you must own your home or have very little left to pay on the current mortgage. You have to have enough equity in the house for the banks to take a chance and lend you money on the property. If you do still owe on your house (you do not own it with free and clear title) you may be able to get a reverse mortgage but you will have to use the money you get to pay it off. On that note, you are also required to pay any taxes on your home as well as insurance. The last disadvantage of a reverse mortgage is that you have to keep your home looking good and in repair. If the bank decides to stop buy and review if you are keeping up with your end of the contract and the house is in major disrepair, they could revoke your loan and you would be responsible for paying back the loan and interest. All in all, reverse mortgages are a great way for seniors to get some extra cash that can be used for anything like a vacation or medical expenses. Always keep in mind that you are not getting free money. Banks are in the business of making money. If you have any questions you should talk to a financial advisor or accountant.

Reverse Mortgage Qualifications--What You Need to Know



Your house can be a source of cash...

How do I know if I qualify for a reverse mortgage?

Reverse mortgages are almost like the exact opposite of a traditional mortgage.  Instead of making payments to a bank you are getting paid by it.  It is  a great option if you need some extra cash for making home repairs, taking a vacation, or even paying off medical bills.  But not everyone will be able to get a reverse mortgage, there are certain qualifications a person must meet before you are approved.





To qualify and receive a reverse mortgage you must be 62 or older and live in the home.  There are no income guidelines, as a matter of fact, you do not even have to have an income in order to meet reverse mortgage qualifications.  That is the great thing about getting one, it's fairly simple to get and there aren't a whole bunch of qualifications and red tape to go through.

You are required to keep your home in good condition or make necessary repairs.  You will have to pay property taxes and home owners insurance.  The lender wants to make sure that your home is going to keep its market value, basically they want to know that they aren't going to be loosing money in the end.

You will also be required to live in the home that you receive the reverse mortgage on.  When you pass on, sell the house, or do not live in the house for 12 months the loan will become due.  This is something to keep in mind.  If you do not make repairs on your house the lender can force you to pay the loan back or sell the home (remember, they do not want to lose money).

Traditional mortgages require you to make monthly payments on your home.  This is not so with a reverse mortgage.  You will get a loan based on the equity in your home and you will have nothing to pay back until you are no longer living in the home or it goes into disrepair.

Unlike traditional mortgages where you make payments and accrue interest, the interest from a reverse mortgage adds onto the amount of the loan.  This does not have to be paid every month but will be added on to the loan when you leave the home or pass away. 

As you can see, a reverse mortgage is great for someone in their golden years.  The money can be used for everything under the sun and you have nothing to pay until you leave the house.  For seniors who are looking for some extra cash for that dream vacation or need more money for medications, a reverse mortgage is a good thing to look into.

The Basics You Need to Know

A reverse mortgage is only available for persons 62 years and older. The reverse mortgage is a loan that is placed on the equity in a home. It is referred to as ‘reverse’ because it is not like normal mortgages where the homeowner receives a lump sum and repays the lender over many years for the debt. In  a reverse mortgage, the lender releases money to the homeowner for the life of the mortgage and the loan amount increases as time goes by.
Reverse mortgages are a great way for older people to get some extra money by using the equity in their home.  They are able to use this money anyway they see fit, but there are some disadvantages to getting a reverse mortgage.

First, you have to keep in mind that banks are out to make money.  They are taking a risk by giving you a loan on your home, in turn they will charge you interest on your loan.  On top of the loan interest there will be fees you have to pay, such as house appraisal and an organization fee.  Usually these fees are added to the loan so you wont have to pay until you leave your home.

Second, you are usually required to live at the house that you get the reverse mortgage on.  A lot of contracts will have a certain number of days or months that you can live elsewhere before you are expected to pay the loan and interest back.  This sounds great if you are planning on living in your home until you pass away, but think if you get sick and have to spend 18 months in the hospital.  You may come out and discover that you have lost your house because you weren't living there while you were in the hospital. However, this is also a stipulation with most conventional mortgages but is very rarely enforced.

Third, you must own your home or have very little left to pay on the current mortgage.  You have to have enough equity in the house for the banks to take a chance and lend you money on the property.  If you do still owe on your house (you do not own it) you may be able to get a reverse mortgage but you will have to use the money you get to pay it off.  On that note, you are also required to pay any taxes on your home as well as insurance.

The last disadvantage of a reverse mortgage is that you have to keep your home looking good and in repair.  If the bank decides to stop by and review if you are keeping up with your end of the contract and the house is in major disrepair, the lender could revoke your loan and you would be responsible for paying back the loan and interest, again this is one of those things that is possible but unlikely, but you should keep it in mind.

All in all, reverse mortgages are a great way for seniors to get some extra cash that can be used for anything like a vacation or medical expenses.  Always keep in mind that you are not getting free money.  Banks are in the business of making money.  If you have any questions you should talk to a financial advisor or accountant.