Equity Concerns Answered Concerning the Reverse Mortgage
Of the top concerns on my customers minds what happens to the home and remaining equity after death must be near the top of the list. Somehow, misinformation regarding this subject is rampant.
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.
Reverse mortgage companies make profit on the interest accrued on those moneys loaned to the senior. The contract is the bank is repaid the loan plus interest upon the sale of the property. Many times this is after the death of the borrower.
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.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
If the borrower dies the home is passed along to the estate for liquidation to pay the mortgage company back. The mortgage company allows roughly 12 months for a sale.
Lenders are in the interest business. They are not in the foreclosure business. While the home is being marketed for sale they are still making money. Therefore, if it is being marketed at a fair price by a professional realtor, extensions are normally granted.
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.
Any remaining equity goes to the borrower's estate. The myth abounds in the senior community that the bank is entitled to this money.
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.
Reverse mortgage companies make profit on the interest accrued on those moneys loaned to the senior. The contract is the bank is repaid the loan plus interest upon the sale of the property. Many times this is after the death of the borrower.
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.
Based upon the calculation their bets are relatively covered and the vast majority of borrowers will have equity at their passing or when the home is sold, whichever comes sooner.
If the borrower dies the home is passed along to the estate for liquidation to pay the mortgage company back. The mortgage company allows roughly 12 months for a sale.
Lenders are in the interest business. They are not in the foreclosure business. While the home is being marketed for sale they are still making money. Therefore, if it is being marketed at a fair price by a professional realtor, extensions are normally granted.
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.
Any remaining equity goes to the borrower's estate. The myth abounds in the senior community that the bank is entitled to this money.
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:
Get the skinny in great guide book on the reverse mortgage in California here. Get important answers about the California reverse mortgage informational website.
posted by Credit Counseling at
9:15 AM
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