Reverse Mortgage " Will Money Be Left Over For the Heirs?
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.
The algorithms tell the lender it is making a calculated gamble to loan a borrower X amount of money. Lenders, like insurance companies know the deal, and way more often than not there will be equity remaining.
At death the home is typically willed to the heirs. The heirs are given roughly a year to sell the home. If it takes longer the lender normally allows extensions.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
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.
Reverse mortgage folklore explains how the mortgage company gets all of this equity. Dirty, filthy banks praying upon seniors. On the contrary, the estate gets it.
From time to time a senior lives far longer than expected and the mortgage amount is greater than the sale price of the home. If this is the case, no worries for the borrower or heirs.
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.
The algorithms tell the lender it is making a calculated gamble to loan a borrower X amount of money. Lenders, like insurance companies know the deal, and way more often than not there will be equity remaining.
At death the home is typically willed to the heirs. The heirs are given roughly a year to sell the home. If it takes longer the lender normally allows extensions.
A twelve month window is not necessarily set in stone. Reverse mortgage companies love interest accumulation and will gladly give extensions on top of the 12 month sale time-frame if the home is being actively marketed per FHA guidelines.
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.
Reverse mortgage folklore explains how the mortgage company gets all of this equity. Dirty, filthy banks praying upon seniors. On the contrary, the estate gets it.
From time to time a senior lives far longer than expected and the mortgage amount is greater than the sale price of the home. If this is the case, no worries for the borrower or heirs.
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:
Bone-up onCalifornia reverse mortgage here. Numerous questions get answered on the reverse mortgage of California EDU site.
posted by Credit Counseling at
9:20 AM
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