Reverse Mortgages

What is a reverse mortgage?

A reverse mortgage is a way for homeowners that are 62 or older to get money from their home's value without selling it. Instead of the homeowner making monthly payments, the lender pays the homeowner. They can get the money as a lump sum, regular payments, or a credit line.

The homeowner keeps owning and living in the house. The loan is paid back when they sell the home, move out, or pass away. The money from selling the home is used to pay back the reverse mortgage, including interest and fees.

The homeowner still needs to pay property taxes, insurance, and take care of the home. A reverse mortgage can be helpful for seniors who need more money, but it's important to understand all the costs and talk to financial experts before deciding.

What is equity?

Equity is the portion of a property's value that the homeowner truly owns. 

Here's a simple breakdown:

Equity = Property Value - Outstanding Loan Amount

For example, if your home is valued at $250,000, and you still owe $150,000 on your mortgage, your equity in the home is $100,000.

As the property value increases or the mortgage balance decreases, equity grows. Homeowners can tap into this equity by selling the property, refinancing, or using a reverse mortgage.

Why is it called a reverse mortgage?

Instead of the homeowner borrowing money for a mortgage and making monthly payments over a period of time (like 30 years), the reverse mortgage loan is not due until the homeowner no longer resides in the home, either through death or transfer of ownership.

Do I have to pay the money back?

You do not have to make any payments on the loan as long as you continue to live in the home, maintain the home and pay insurance and property taxes.

Why do people take out reverse mortgage loans?

People take out reverse mortgage loans for various reasons, and it often depends on their individual financial situations and needs. Some common reasons why individuals consider a reverse mortgage:

• Supplementing retirement income
• Paying off debt
• Need funds for home repairs
• Delaying Social Security benefits
• Managing financial challenges

How are these loans regulated?

The government sets rules to make sure reverse mortgages are fair and safe for homeowners. Different laws and agencies have guidelines that lenders must follow when offering these loans. These rules cover things like how much money you can get, the fees involved, and protections for homeowners. The goal is to make sure that older homeowners are not taken advantage of and that they understand the terms of the loan.

Most reverse mortgages are regulated by the Federal Housing Administration through the United States Department of Housing and Urban Development (HUD). HUD requires that anyone applying for reverse mortgages can prove that they can continue to pay the ongoing property taxes and homeowner’s insurance.

Does the bank own my house?

No, with a reverse mortgage, the bank does not own your house. You retain ownership of your home throughout the life of the loan. A reverse mortgage is a loan that allows you to convert a portion of your home equity into cash, but you continue to live in and own your home. The loan is repaid when you sell the home, move out, or pass away. At that point, the proceeds from the sale of the home are used to pay off the reverse mortgage, including any accrued interest and fees.

What are the drawbacks of a reverse mortgage?

There are a few down sides to a reverse mortgage:

• Getting a reverse mortgage can be expensive. There are fees involved, like closing costs and mortgage insurance. These costs can eat into the money you get from the loan.
• With a reverse mortgage, interest keeps adding up over time. This means that the amount you owe increases, and it might leave you with less equity in your home for your family or heirs.
• If you were planning to leave your home to your family, a reverse mortgage could affect that. When you pass away or move out, the loan has to be paid back, and it might use up the money your family could inherit.
• Even though you get money from a reverse mortgage, you still own the home. This means you have to pay property taxes, insurance, and take care of the maintenance. If you can't keep up with these responsibilities, it could lead to problems.

Where can I get help?

If you live in New York City, contact the Center for NYC Neighborhoods.

If you live on Long Island, contact the Community Development Corporation of Long Island (CDCLI) for reverse mortgage counseling. 

For general New York state resources, contact the New York State Department of Financial Services.

You can also contact a Housing and Urban Development approved Counseling Agency.

What is a reverse mortgage scam?

Scammers can take advantage of the fact that homeowners can receive the loan in the form of a lump sum payout and may encourage or pressure an older adult to take a reverse mortgage and lend the money to them.

Be careful:

• If someone is pressuring you to get a reverse mortgage so they can use the money, they may be exploiting you.
• If someone is saying you are required to sign a power of attorney or sign over the proceeds to a “loan officer or other agent” for future “disbursal,” this is likely a scam.
• If a broker is pressuring you to purchase annuities, long- term care insurance, high risk investments or other financial products with the proceeds from the reverse mortgage, it is likely a scam and almost always a bad idea.
• The surviving non-borrowing spouse could be vulnerable to the reverse mortgage loan becoming due and payable at the death of the borrowing spouse. For this reason, it is advisable in almost all cases that both spouses be named as borrowers 

How do I report a reverse mortgage scam?

If someone is trying to involve you in a reverse mortgage scam or you are a victim of a reverse mortgage scam you should report it to the New York Attorney General and also the Department of Financial Services.