At TSIT, helping customers understand how reverse mortgages work is one of our first priorities. We have found that one of the best ways to do this is to compare reverse mortgages to a traditional or “forward mortgage.” 

A Forward Mortgage: you pay the bank

When you bought your home originally, you probably obtained a mortgage from a bank. As you made your mortgage payments each month, the amount you owed on your home got smaller, and the equity you owned in your home got larger. You paid the bank monthly with a forward mortgage. 

A reverse mortgage: the bank pays you
With a reverse mortgage the bank pays you. You receive a percentage of the value of your home, which you can borrow in many ways. You also make no repayments — and pay none of the interest that is accruing on your debt — until the home is no longer your primary residence. Like a traditional mortgage, you are still responsible for your real estate taxes and homeowner’s insurance. 

Type of reverse mortgages:

Federally Insured Home Equity Conversion Mortgages (HECM)

HECMs were the first regulated programs on the market. Today, they are the most popular reverse mortgages, accounting for an estimated 90 percent of the total market. Available since 1989, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development. 

Jumbo Reverse Mortgages

Jumbo Reverse Mortgages, or what some call Proprietary Reverse Mortgages, were developed to address unmet needs that could not be served by the HECM reverse mortgage, specifically for individuals with higher property values. Jumbo Reverse Mortgages are not insured by the federal government, but feature many of the important consumer protections and benefits of the government programs, including mandatory counseling. 

Paying back a reverse mortgage

A loan that you never have to pay back? It may sound too good to be true, but here’s how it works: there are three circumstances under which your reverse mortgage must be paid back:

• You and any other borrower have passed away

• You and any other borrower have not lived in the home for 12 consecutive months

• You decide to sell your home.

When any of these events occur, the loan will become due. This will include the monies you borrowed, interest, and closing costs. The loan is typically paid back through the sale of the home or through other proceeds if the heirs would like to keep the home. Remember, this is a non-recourse loan which means the amount you or your heirs repay will not exceed the value of your home at the time when it is sold. 

If you are interested in learning more about reverse mortgages, TSIT has the experience to help you understand the options and find the reverse mortgage that’s specifically tailored to fit your financial needs.