In a reverse mortgage, the borrower retains the ownership of the house. The borrower is still responsible for paying property taxes, insurance, and maintaining the home in good condition, as well as complying with any other terms and conditions of the loan. The lender holds a lien on the property and has a right to foreclose if the borrower fails to meet those obligations. Once the borrower sells the home, moves out permanently, or passes away, the loan becomes due and the lender will sell the property to repay the loan. Any remaining proceeds from the sale of the home will go to the borrower or their estate. It's important to consider both the Reverse Mortgage Pros and Cons before making a decision. Additionally, if the borrower fails to pay property taxes and insurance, the lender may pay them on their behalf and add the cost to the loan balance.
The myth that the bank owns the home may be due to the possibility that the lender may own the home if the borrower does not meet the terms of the loan, for example, if he or she doesn't maintain the home or pay property taxes and home insurance. If the reverse mortgage loan will not be repaid through the sale of a home, foreclosure proceedings can be initiated. As with any mortgage, there are conditions to keep your reverse mortgage in good shape, and if you don't comply with them, you could lose your home. Homeowners who choose this type of mortgage don't have to pay a monthly fee and don't have to sell their home (in other words, they can continue to live in it), but the loan must be repaid when the borrower dies, moves permanently, or sells the home.
A reverse mortgage can help homeowners seeking additional income during their retirement years, and many use the funds to supplement Social Security or other income, cover medical expenses, pay for home care and make home improvements, Boies says. If there is balance from a home equity loan or home equity line of credit (HELOC), for example, or from liens or tax judgments, these must first be paid with the proceeds of the reverse mortgage. A reverse mortgage or HECM loan will expire and be payable if the borrower fails to comply with property taxes, repairs and maintenance. Under the terms of an HECM, those who inherit a home subject to a reverse mortgage have four options.
One of the most popular types of reverse mortgages is the conversion mortgage with home equity (HECM), which is backed by the federal government. This rule doesn't prohibit you from leaving your home to travel or come and go as you please, but if you leave the property for 12 consecutive months, the reverse mortgage loan is eligible to be canceled and payable. It's best to talk to a HUD-approved counselor before committing to a reverse mortgage (and if you want to get a HECM, you'll be asked to do so). Reverse mortgages are complicated and generally not the best option for older homeowners looking for access to extra money.