Reverse Mortgage Loans

by Mark A. Krohn, Partner
Jacobowitz & Gubits, LLP

A reverse mortgage loan remains little known since their introduction fifteen years ago. But a number of financial institutions, capitalizing on a marketing opportunity based upon the fact that senior citizens are living longer, are ambitiously expanding their reverse mortgage programs.

Reverse mortgages are loans that, like other types of mortgages, are secured by the borrower’s house or condominium. Co-op apartments are not eligible for such loans because they are owned by a corporation in which the homeowner owns shares. Generally, the reverse mortgage requires no financial, credit or medical report before placing tax-free money into the hands of borrowers. Borrowers can remain in their home without having to repay any of the loan until they sell, move out, or die. Further, loan repayments cannot exceed the value of the borrower’s home at the time of repayment. If the value of the home exceeds the loan amount, the difference reverts to the borrower or the borrower’s estate.

Depending on the reverse mortgage chosen, a borrower can receive their loan in a lump sum, in monthly payments for as long as they live in their home, or from a line of credit. The most popular is the line of credit, because it offers greater flexibility and because interest is charged only as the money is borrowed. There are factors that banks consider when determining how much money to loan concerning a reverse mortgage, such as the age of the borrower, the current interest rate, and the physical location of the home. Also, there usually are high origination fees and closing costs associated with reverse mortgage loans.