Reverse Mortgages

In these times of economic crisis, many are searching for ways to generate or supplement their incomes.  Reverse mortgages is a frequently used mechanism by homeowners who are 62 years or older. Contrary to a mortgage loan, in which a debtor makes monthly payments to the bank, in reverse mortgages, the owner of the property receives money from the bank.  The amount of money received need not be returned to the bank until the house is sold, the owner dies, or the house no longer constitutes the owner’s principal residence.  Essentially, the bank extends a loan utilizing the value of the residence as collateral.  The money received by the homeowner is generally tax free. 

There are three types of reverse mortgage.  The single purpose reverse mortgage that is offered in some states and by local governments and non-profit organizations; the home equity conversion mortgages; and the proprietary reverse mortgage.  The single purpose reverse mortgage is the less costly option, but it is not available in every state, and the funds can only be used for a particular purpose.  For example, the single purpose can be repairs or improvements to the home.  The majority of home owners with low and moderate income qualify for this type of reverse mortgage.

The mortgage guaranteed by the government of the United States is usually more costly and usually requires a significant down payment.  It also requires that the applicant meet minimum income requirements even though it can be utilized for any purpose.  Before applying for such a reverse mortgage, the applicant is required to meet with an independent counselor, duly approved and certified by the corresponding governmental authority.  The counselor must explain the cost of the instrument, and the financial consequences and alternatives available.  The counselor can also explain the pros and cons of the different alternatives available. 

Generally, the financial institutions charge an origination fee, an insurance fee, and expenses for processing the loan.  These charges are usually fixed by the institution.  The charges collected in the instruments guaranteed by the Government of the United States are established by law.  Because the applicant retains title to the property, he also retains the obligation to pay property taxes, insurance, and any maintenance cost.  In the majority of the reverse mortgages, the applicant has the absolute right to terminate the agreement within three days of signing the agreement. 

It is very important that when considering a reverse mortgage, that one  considers all options.  One may qualify for a less costly alternative which could represent considerable savings.  Unfortunately, fraud is very common in the reverse mortgage industry.  Therefore, I recommend consulting with a trained professional before making a commitment to any of the options available.  If there is suspicion of fraud, notify the authorities immediately.  

Luis A. González
Attorney and Mediator
L. A. González Law Offices, P.A

(407) 649 - 8389