Excerpt from: AARP Foundation (click for full article)
Reverse mortgages — in which a homeowner receives money for a home’s
equity, each month incurring a slightly greater debt to be repaid when
the home is sold — can sometimes help older people on fixed incomes.
Available to those over age 62, the loans are regulated by the U.S.
Department of Housing and Urban Development (HUD).
The amount of equity that can be drawn from a reverse mortgage is a
function of the value of the property and the age of the youngest
borrower: the older the borrower, the higher the loan. Evidence has been
mounting that couples considering reverse mortgages are often persuaded
into taking the younger spouse off the deed. They report that mortgage
brokers (whose fees are based on loan amount) assured them that this
would be financially beneficial and could later be undone. What the
couples do not understand is that the lender can call the mortgage due
and foreclose after the death of the borrower. As a result, surviving spouses of reverse mortgage borrowers are faced with foreclosure once the borrowing spouse dies.
The federal reverse mortgage statute should provide protection: It
states that the mortgages may not be called due and payable until both
spouses have died or the home is sold. In addition, HUD regulations
provide that, after the death of the borrower, the property can be sold
for the lesser of the mortgage balance or 95 percent of its current
value.
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