5350 Discovery Park Blvd.

Williamsburg, VA 23188



Reverse Mortgages

What is a reverse mortgage?
A reverse mortgage is a loan available to people 62 years of age or older that allows the borrower to turn part of their equity into cash. Unlike a traditional mortgage, there are no monthly payments. As long as you live in your home as a primary residence and maintain it according to loan requirements (such as paying taxes and insurance) the loan does not need to be repaid. There are typically no credit score or income requirements for a reverse mortgage, but there must be equity on the home. In addition, loan limits will depend upon certain things such as age of borrower, appraisal, condition of the home, and current interest rates.

How are proceeds received from a reverse mortgage?
There are several options in which to receive your proceeds. You can choose a lump sum up front, payments each month for a specified period of time, a line of credit in which you draw funds as you need them until the credit line is exhausted, or perhaps a combination of these.

Can my loan balance grow?
Absolutely! Even though there are no monthly payments each month, the interest accrues as time passes. With a conventional mortgage, the loan balance decreases with each payment because a reverse mortgage is negatively amortized, the loan balance will grow each month based on the interest expense. The loan fees are usually higher on a reverse mortgage than a traditional mortgage and almost all require mortgage insurance. These also accrue as time passes.

Can I make prepayments toward my balance during the loan?
Most reverse mortgages will allow prepayments without penalty. However it depends upon the terms of your specific loan. Payments are applied according to the terms of you loan. Most prepayments go toward mortgage insurance first, then loan servicing fees, then interest, etc. There again, the way payments are applied depend on the specific terms of your individual loan.

What happens to my home upon my death or if I cannot stay in my home due to health reasons?
Depending upon the terms of your loan, there is a specified period of time in which the estate or heirs can either pay off the loan balance or sell the home. This time period can vary, but is generally no more than 12 months. In the event the home does not get sold within these terms or the balance paid, the bank may take possession of the property or foreclose.

Reverse mortgages are not for everyone and should be considered very carefully and discussed at length with your family. There are many pros and cons to this type of mortgage. Talk to a professional financial advisor about how it could affect you. Also use caution when choosing a reverse mortgage with terms acceptable to you.

If you would like more information about this or other types of lending, please contact me.