What is a reverse mortgage loan?
A reverse mortgage loan is a special type of mortgage loan for seniors (generally age 62 and older).
Unlike a traditional mortgage, a reverse pays you loan proceeds drawn from your home's equity. No repayment is required until you no longer live in the mortgaged home. Reverse mortgage interest is calculated as compound interest.
Before getting a reverse mortgage you have to complete counseling by an approved agency. The Division of Banks (DOB) recommends attending counseling sessions in person. Don't be afraid to ask a family member or someone you trust to go to the counseling sessions with you.
Questions to ask during counseling:
- Are there alternate loan products that may fit my needs?
- Are there resources, services and benefits available to me from non-profit and/or government programs?
- How do I interpret these loan documents?
- How will I receive my certificate of completion?
A typical reverse mortgage loan has up front fees and costs. You should carefully review all fees and costs.
These fees may amount to thousands of dollars and increase the amount owed on your loan. Make sure you understand the total costs associated with the loan - ask questions and insist on answers.
Typical fees include:
- Origination fee
- Mortgage Premium Insurance
- Closing costs
- Service fees
- Monthly mortgage fee
Massachusetts law requires a 7-day cooling off period. That means you have the right not to proceed with the loan for 7 days after signing a loan commitment letter.
Federal and state laws also grant you the right to cancel the transaction within 3 business days from the date of closing your reverse mortgage loan.
- Sales tactics that require or suggest buying annuities, investments, long term care insurance, or other types of insurance policies with proceeds from the loan.
- Sales tactics involving contractors looking for proceeds to pay for home repairs.
- Advice to transfer title to the property out of you or your spouse's name to qualify for the loan.
- Advice to make loan proceeds payable to third parties.
- Estate planning services offering to refer you to a lender for a fee or percentage of the loan. You get information on lenders from the DOB and Housing and Urban Development at no cost.
- Pressure to draw down all available equity into a single upfront disbursement.
The DOB recommends:
- Getting independent legal and other financial advice before signing loan documents.
- Keeping your own legal representation at closing of the loan.
- Discussing your reverse mortgage options with trusted family members.
- Understanding reverse mortgage loans cannot have prepayment penalties or restrictions.
- Understanding your obligations under the loan - i.e. to pay taxes, insurance, and maintain the property in a satisfactory condition.
- Understanding that over time the loan balance may increase and impact the accumulated equity in your property.