Authored By: Nassau Suffolk Law Services
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What is a reverse mortgage?
A reverse mortgage is a loan that allows homeowners age 62 and older to borrow against the equity in their homes.
The money you get and the interest on the loan is added to the balance of the reverse mortgage each month. As the money you owe the bank increases, the equity in your home decreases because you are borrowing against it.
What is equity?
Equity is the appraised value of your home less the existing mortgage, if any, plus any other liens attached to the property.
Why is it called a reverse mortgage?
Instead of the borrower making monthly payments over a period of time (e.g. 30 years), the loan is not due until the borrower 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.
Does the bank own my house?
No. The bank has a mortgage lien against the property that comes due when the borrower dies, or transfers ownership and moves out. If payment is not made at that time, the bank may commence a foreclosure action to take title of the home.
Why do people take out reverse mortgage loans?
People take out reverse mortgages to have a line of credit available when they need it, to get regular monthly payouts, or to get an up-front lump sum payout.
How are these loans regulated?
Most reverse mortgages are regulated by the Federal Housing Administration through the United States Department of Housing and Urban Development.
These reverse mortgages are called Home Equity Conversion Mortgages (HECM).
HUD now requires that anyone applying for reverse mortgages can prove that they can continue to pay the ongoing property taxes and homeowner’s insurance.
What are the drawbacks of a reverse mortgage?
A reverse mortgage will effectively preclude the borrower from passing her home to heirs.
Reverse mortgages can end up being very expensive for the borrower. If you are considering a reverse mortgage, you should contact a housing counselor or a lawyer.
- Click the following link for more information from The National Consumer Law Center - A Reverse Mortgage Primer: Consumer Debt Advice from NCLC
Where can I get help?
If you live on Long Island, contact the Community Development Corporation of Long Island (CDCLI) for reverse mortgage counseling.
What is a reverse mortgage scam?
Scammers can take advantage of the fact that borrowers 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, for example:
- 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. There are very few, if any, occasions, in which it is advisable that only one spouse is named as the borrower.
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.
Who can I ask about reverse mortgage?
- If you live on Long Island, contact the Community Development Corporation of Long Island (CDCLI) for reverse mortgage counseling.
- You can contact a Housing and Urban Development approved Counseling Agency
I need more information.
These resources have helpful information about reverse mortgages:
- Ask the Consumer Financial Protection Bureau (CFPB) about reverse mortgages
- The CFPB also put together this PDF to guide anyone considering a reverse mortgage
- Read answers to your reverse mortgage questions on the New York State Department of Financial Services website