A reverse mortgage is different from other loan products because repayment is not accomplished through a monthly mortgage payment over time. Instead, it is repaid all at once at loan maturity. Loan maturity typically happens if you sell or transfer the title of your home or permanently leave the home.
A reverse mortgage is a way for a homeowner 62 or older to use her house to raise extra money. The owner takes out a cash loan secured by the value of her house and doesn’t have to pay the loan.
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One example I have personally witnessed is of a reader who obtained a reverse mortgage and then experienced hail damage to the roof of the home. The homeowner’s insurance provided a check to repair.
For many seniors, taking out a reverse mortgage is a way to take advantage of the equity they’ve built up while staying in their home for as long as possible. Sometimes, however, there comes a time when they want or need to sell. You may need to move into a nursing home or move in with relatives.
Don’t be suckered into buying a reverse mortgage. But when you die, sell your home or move out, you, your spouse or your estate, i.e., your children, must repay the loan. Doing that might mean.
· A relative can pay off the reverse mortgage debt and keep the house once the reverse mortgage comes due – either because the homeowner/reverse mortgage holder died or left the house. You should check with the mortgage company about whether there are any early payment penalties if you want to pay it off before either of these two scenarios play out.
The amount that’s due to the lender is the lesser of the reverse mortgage loan balance or 95% of the appraised market value of the home. Say the appraiser determines the home is worth $200,000 and the loan balance is $100,000. To keep the house, the heirs need to pay the loan balance of $100,000.
If children buy their parents out of a reverse mortgage, is that a transfer of an asset for less than fair market value, which would negatively affect medicaid eligibility? In this instance the house could potentially sell for $600,000 to $700,000 on the market, but the buyout of the reverse mortgage would be roughly $400,000.