What is a reverse mortgage?

my grandfather wants to take a reverse mortgage to help him pay his bills, but does this mean he loses his house? When my grandfather passes away does he then lose his house? I was wondering what was will happen to his house when he get this thing and also after he passes away.

12 Answers

  • wizjp
    Lv 7
    9 years ago
    Best Answer

    Takes the equity he has in his property out and encumbers the property for that amount with no monthly payments.

    When he dies, his estate may eitehr pay off the reverse mortgage and take title, or pass it on to the mortgge holder

  • Debdeb
    Lv 7
    9 years ago

    I'm in the reverse mortgage business. This is not some giant scam to rip off old people. For many people, it's the difference between living in the house, or in the daughter's spare room; the difference between paying both the electric and gas bills or having to choose.

    Your grandfather would still own his home. It's a mortgage, and the lender has a lien on the property, just like with any other mortgage.

    If your grandfather doesn't have enough money to live on, then using his home to finance his life makes a lot of sense to me.

    His heirs will still inherit the house, and just as with any other mortgage the loans needs to be paid. The heirs can just pay the loan if they have the money, or they can sell the house and any additional proceeds are theirs, or they may be able to refinance the house if someone wants it. When the heirs sell the house, if the amount owed is greater than the proceeds of the sale, they do NOT owe the difference. Same if your grandfather sells, he can not owe more than the sales value of the house. You can't sell it to someone for 20% of the market value, but the appraisal will show what the current value is. If the heirs decide there's not a benefit to them to sell the property, they can turn it over to the lender and forget about it.

    Why don't you or your grandfather call the two big lenders, Wells Fargo and BofA, and talk to a loan officer?

    Just as with any other type of loan, if you don't NEED the loan, you shouldn't GET the loan.

  • 4 years ago


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  • MRA
    Lv 4
    9 years ago

    A reverse mortgage is a loan, and a lien is placed against the property. He does not lose the house when he gets a reverse mortgage; he still has full title to it. Since it is a reverse mortgage, he does not have to make monthly mortgage payments, and therefore the lender cannot foreclose on him for non-payment for as long as it is his primary residence. Likewise, since it is an open-ended loan, your grandfather can remain in his home (and the loan is not due) for as long as it is his primary residence; there is no expiration date or deadline. However, because he still has full title, he is required to continue to pay for property taxes and homeowner's insurance.

    Once it is no longer his primary residence, either because he passes away or sells it or moves to a nursing home permanently, the loan becomes due and payable. For the heirs / estate to inherit the house, like with any other loan, the reverse mortgage must be paid off first. The loan is not assumable. The heirs can either refinance into another loan in their own name and keep the home or sell the home and keep the difference after the loan is paid off. If the home sells for less than what is owed (there are restrictions - must be arm's length transaction), then the heirs are not personally liable for the difference and the lender takes the loss. The heirs can also choose to walk away and sign a Deed in Lieu of Foreclosure; by signing this, the heirs are giving up title to the lender and making the lender responsible for the sale.

    The heirs make the choice. This would be no different than any other loan or lien on the property. The good news is that with a reverse mortgage, the heirs have a minimum of 6 months to refi or sell the house; and typically can get two 3-month extensions, for a total of one year if they are showing a good faith effort to pay off the loan. Another advantage of a reverse mortgage is that the lender cannot go after any other asset your grandfather may have in order to pay off any shortfall, nor are the heirs personally liable.

    The only negative is on you because you may not have the resources to pay off the loan or refinance in order to keep the house when he eventually passes away; especially in this current economy. Since it is a negative amortization loan, each month that your grandfather does not make a monthly mortgage payment, the loan balance gets bigger. However, do you have the resources now to help your grandfather pay his bills and remain independent so he does not have to take out a loan or sell his home?

    Source(s): I specialize in reverse mortgages (CA)
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  • John M
    Lv 7
    9 years ago

    It's like a loan, only you don't make any payments. You can get a lump sum or monthly income from the reverse mortgage. The lender agrees to an amount and there is an interest rate associated with it that accrues as long as the person is in the home (defined by not living away for more than 364 consecutive days) on whatever portion of the money has been disbursed.

    When he dies or moves away, the house is sold and the proceeds of the sale go to pay off the loan. Then owner or his heirs get whatever money is remaining from the sale. If the person lives longer than expected and the house doesn't sell for enough to cover the loan, the lender forgoes the loss.

    These can be an okay deal for certain people, depending on their other sources of income and their health etc. The main benefit is the pooling of risk that they outlive the money they could get in a regular loan or by selling the house to an investor and renting it back as a condition of sale.

  • 9 years ago

    Do NOT have your grandfather do a reverse mortgage on his home they are one of the worse financial tricks in the Real Estate book. The companies will give him money in exchange for ownership to his home when he passes away. Yes, you could buy the home back but at very high fees. Instead have your grandfather use the equity in his home and get a small home loan and pay off all his bills be sure the interest rate is the lowest he is qualified for. Many Reverse Mortgage Companies will prey on elderly people making it sound great to get money for your home now and not have any payments but then the home is no longer owned by them, they do get to live there only until they pass away. Then the reverse mortgage company comes in and takes the home. Sneaky, but legal to do. A home equity loan would be 100% better.

    Source(s): Real Estate Tycoon and Investor
    • Darla3 years agoReport

      A reverse mortgage has nothing to do with a trick in the Real Estate Book as there is real estate agent involved in the mortgage process. It has to do with bank lending.

  • 3 years ago

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  • Anonymous
    9 years ago

    As stated above, this gets reconciled when your grandfather dies or moves from the home.

    If the house is sold and is worth more than the money owed, the estate gets the remaining money.

    If the house is sold and is worth less than the money owed, the lender will issue a 1099-A. The estate will owe income tax on the amount owed. If there are enough other assets to pay the income tax, the estate (or heirs) have to pay.

    If the house is not sold, the estate must use other assets to pay off the debt. If the estate negotiates with the lender to pay less than what is owed, a 1099-C is issued.

  • 9 years ago

    Time to get involved.

    Reverse mortgages are one of the worst financial mistakes are person can make.

    Please start reading - everything you can find on the subject.

    And not from sites that sell and push them either.

    Better option:

    Sell the home, and move to a very cheap apartment that he can afford.

    If he is bad with money - take the house money and set him up an annuity...

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    4 years ago

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