In a recent WSJ.com Real Estate article, Anya Martin provides some current information on reverse mortgages. She notes that reverse mortgages give older homeowners income by tapping into their home’s equity. But when the homeowner dies, heirs must act fast or they’ll risk foreclosure.
The vast majority of reverse mortgages are home-equity conversion mortgages insured by the Federal Housing Administration (FHA). Borrowers are allowed to tap into 50% or more of their home equity up to a maximum loan amount of $625,500. However, the FHA has stringent repayment rules that lenders must follow upon the death of the last mortgage-holder on the note.
Reverse-mortgage borrowers must be 62 or older and have paid off most or all of their mortgage. Borrowers don’t need to pay back principal or interest until the home is sold or the homeowner dies.
When the last remaining borrower living in the property dies, the FHA requires loan servicers to send a letter stating that the balance of the loan is due. The heir or estate administrator is then given 30 days to state whether the loan will be repaid or the home sold. If a response doesn’t come within that time period, foreclosure proceedings may be initiated.
The article provides other additional current information on the use of reverse mortgages since the Great Recession.
MWR
