Reverse Mortgages Q Home prices are falling in my area, if I take a reverse mortgage, will I end up in financial trouble if the house is worth less than my loan?
A No. Most reverse mortgages (about 90 percent) are FHA-backed Home Equity Conversion Mortgages. They come with an FHA guarantee that protects both the lender and the borrower from falling home prices. So, if property values suddenly drop, the homeowner is fully protected by the FHA insurance.
If the homeowner has opted for monthly checks for life, they will always get their monthly check, even if declining property values have made the house worth less.
In fact, the lender or bank does not own any part of the home and cannot call in the loan as long as you want to live in the house, keep up the property, and pay the taxes.
Even your heirs will not be forced to sell the home. They may keep it and refinance to pay off the outstanding balance. In the vast majority of situations, this balance will be much less than the house is worth.
So, a reverse mortgage remains a great way for seniors who are house rich but cash poor to get money out of their house while still living in it.
Any homeowner 62 or older can use a reverse mortgage to convert his or her home’s equity into tax-free income. Instead of paying the lender every month, a homeowner gets a check from the lender. The loan is repaid when the homeowner dies or sells the house.
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