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How Do Reverse Mortgages Compare to Conventional Mortgages?

September 26, 2010

Comparing A Reverse Mortgage to A Conventional MortgageA Reverse Mortgage is similar to a conventional mortgage because it is a lien against the property and the title remains in the name of the borrower.  As with the conventional mortgage, the borrower is responsible for maintaining the property and paying the property taxes and insurance and association dues if applicable.

The costs are also similar to the conventional loan including an appraisal, title insurance, settlement fees, origination fee, and recording fees.  Additional costs with the HUD Home Equity Conversion Mortgage (HECM) reverse mortgage are the FHA Mortgage Insurance Premium (MIP) and a monthly service fee.  Note that on a conventional loan the servicing fee is included in the interest rate, whereas it is a separate fee with the reverse mortgage.   If one is doing a “forward” FHA loan, they too will have the FHA Mortgage Insurance Premium.

To determine the loan amount on a conventional loan, the lender looks at the home value, credit worthiness, income, assets, and other potential risks that may be associated with loan repayment.  The reverse mortgage is different because there are no income or credit score qualifications.  The age of the borrower(s), the home value, and the expected interest rate are used for determining the loan amount.

With the conventional mortgage one receives a lump sum and has to make monthly payments.  With the reverse mortgage one receive cash without making monthly or immediate repayment.   Funds can be received in a lump sum, monthly payments, line of credit, or a combination of these.

A loan term or when the loan is to be paid in full  is usually set at  15 or 30 years with a conventional mortgage.  A reverse mortgage is to be paid in full when the loan is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.

As with a conventional mortgage, when the loan is due and payable, the house does not become the property of the lender.  The borrower or estate handles the repayment of the loan.  When the home is sold with either mortgage the loan is paid off and the remaining equity is the borrower’s or their heirs.

The reverse mortgage is a non-recourse loan which means the loan is paid back based on the fair market value (generally from the sale of the home) with no personal liability to the borrower or the estate .

For seniors 62 and older, the reverse mortgage is generally more advantageous than a conventional loan.

© 2010-2011 Beth Paterson 651-762-9648

This material my be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link

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  1. Seventeen Facts About Reverse Mortgages You May Not Know. « Beth's Reverse Mortgage Blog
  2. A Reverse Mortgage Should Be A Last Resort… To What? « Beth's Reverse Mortgage Blog
  3. We Are Not Chicken Littles – The Sky Is Not Falling In the Reverse Mortgage World! « Beth's Reverse Mortgage Blog
  4. Reverse Mortgages Are Expensive… Compared To What? « Beth's Reverse Mortgage Blog
  5. Comparing Reverse Mortgage Closing Costs To A Conventional Mortgage – You’ll Be Surprised They Are Not That Different « Beth's Reverse Mortgage Blog
  6. You Need To Know That With A Reverse Mortgage You Remain in Control « Beth's Reverse Mortgage Blog
  7. Are “Hefty Fees” Really A Drawback of the Reverse Mortgage? « Beth's Reverse Mortgage Blog
  8. A Reverse Mortgage Can Really Be Compared To Your Smart Phone « Beth's Reverse Mortgage Blog
  9. Be Cautious on Reverse Mortgages « Beth's Reverse Mortgage Blog
  10. Reverse Mortgage Features and Terms Summary « Beth's Reverse Mortgage Blog
  11. Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage. | Beth's Reverse Mortgage Blog
  12. Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs | Beth's Reverse Mortgage Blog
  13. Reverse Mortgage Borrowers Remain in Control | Beth's Reverse Mortgage Blog
  14. Reverse Mortgage Features and Terms Summary | Minnesota Reverse Mortgages SIDAC
  15. A Reverse Mortgage Can Really Be Compared To Your Smart Phone | Minnesota Reverse Mortgages SIDAC

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