Equity Concerns Answered Concerning the Reverse Mortgage
One of the biggest questions I get from my prospective reverse mortgage customers centers around what happens to the home and more importantly the homes equity after death.
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.
Where the lender makes money is on the accumulation of interest on top of the money which is loaned to the borrower. When the home is sold, many times at death of the borrower, the bank is repaid.
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.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
If the borrower dies the home is passed along to the estate for liquidation to pay the mortgage company back. The mortgage company allows roughly 12 months for a sale.
Remember, a reverse mortgage lender makes money while the home is accumulating interest. It doesnt want to take the home back. So, as long as the heirs abide by FHA guidelines while selling the home, the lender will offer extensions.
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.
Regardless of some of the mythology reverse mortgages are fairly safe for the borrower and estate.
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.
Where the lender makes money is on the accumulation of interest on top of the money which is loaned to the borrower. When the home is sold, many times at death of the borrower, the bank is repaid.
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.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
If the borrower dies the home is passed along to the estate for liquidation to pay the mortgage company back. The mortgage company allows roughly 12 months for a sale.
Remember, a reverse mortgage lender makes money while the home is accumulating interest. It doesnt want to take the home back. So, as long as the heirs abide by FHA guidelines while selling the home, the lender will offer extensions.
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.
Regardless of some of the mythology reverse mortgages are fairly safe for the borrower and estate.
About the Author:
Get the low down in an excellent guide to California reverse mortgage here. Many questions answered regarding the reverse mortgage of California EDU site.
posted by Debt Consolidation Loan at
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