Reverse Mortgages and How They Work

The traditional reverse mortgage loan is defined according to the Code of Federal Regulations Title 12: Banks and Banking (December 2005) Title 12 CFR 226.33(a) as “a nonrecourse consumer credit obligation in which: (1) A mortgage, deed of trust, or equivalent consensual security interest securing one or more advances is created in the consumer's principal dwelling; and (2) Any principal, interest, or shared appreciation or equity is due and payable (other than in the case of default) only after: (i) The consumer dies; (ii) The dwelling is transferred; or (iii) The consumer ceases to occupy the dwelling as a principal dwelling”.

However, there are several different types of reverse mortgage loans. First, there is the Single-purpose reverse mortgage loan that is a reverse mortgage loan made by state or local governments or by a nonprofit organization where the loan proceeds are to be used for a specified purpose. A Tenure reverse mortgage loan is a reverse mortgage loan where the borrower enjoys advances of money over time until reverse mortgage loan matures. A Term reverse mortgage loan is a reverse mortgage loan where the borrower enjoys advances of money for a specified period of time.

Most lenders submit reverse mortgages under the Federal Housing Administration's Home Equity Conversion Mortgage program. FHA-backed reverse mortgages can only be offered to homeowners of the age of 62 and older. These reverse mortgages are insured, which means that if the lender goes out of business, the borrower is still protected and will continue to receive the remaining scheduled payments.

Reverse mortgages have come a long way since the first government-insured reverse mortgage was given in 1989. The traditionally high origination fees are now much lower and some lenders have done away with them altogether. These lower costs are changing the focus of reverse mortgages and opening up the market to customers who shunned it in the past due to the expense and the super low loan-to-value requirement. Today, due to the recent changes, reverse mortgages are able to compete with home equity lines of credit for many consumers. These changes are helping to discharge some of the past negativity that used to surround reverse mortgage loans.

Also See: Pros and Cons of a Reverse Mortgage

Reverse Mortgage Help:

• Reverse Mortgage Pros and Cons

• What is a Reverse Mortgage

• Reverse Mortgages - How They Work

• Reverse Mortgage for Seniors

• Disadvantages of a Reverse Mortgage

• Reverse Mortgages Requirements