A reverse mortgage is based on the appraised value of the home equity and the life expectancy of the homeowner.
No Monthly Payments. Reverse mortgages have no monthly repayment obligations and are not due and payable until the homeowner, or the last of the homeowners, dies, permanently moves out of the home, or sells it. The Bank looks only to the proceeds of the sale of the home for repayment of the reverse mortgage and neither a deceased homeowner’s estate nor his heirs have any liability for payment of any deficiency.
Tax Advantages. Loan advances made to the homeowner under a reverse mortgage are not taxable as income and do not affect the homeowner’s eligibility for Social Security, Medicare, or Medicaid benefits.
Regulatory Requirements. Reverse mortgages are subject to RESPA and Regulation Z. Additionally, owners of the homestead property are required to receive counseling regarding the advisability and availability of reverse mortgages and other financial alternatives before entering into a reverse mortgage.
Priority of Lien. Advances made under a reverse mortgage and interest on those advances have priority over a lien filed for record in the real property records in the county where the homestead property is located after the reverse mortgage is filed for record in the real property records of that county.
Interest. A reverse mortgage may provide for an interest rate that is fixed or adjustable and may also provide for interest that is contingent on appreciation in the fair market value of the homestead property. Although payment of principal or interest may not be required under a reverse mortgage until the entire loan becomes due and payable, interest may accrue and be compounded during the term of the loan if it is provided for by the reverse mortgage loan agreement.
Advances. The advances made on a reverse mortgage loan under which more than one advance is made must be made at regular intervals according to a plan established by the original loan agreement.