Reverse mortgages, four truths to help you separate the facts from fiction

Laura Johnson.

A reverse mortgage offers a way to take equity out of your home and continue to own and live in the home. The lender will make some of your equity available to you either as cash, payouts or as a line of credit. In exchange, at the end of the loan, you will owe the lender the amount you borrowed with interest.

Reverse mortgage borrowers may continue living in their homes without making monthly mortgage payments as long as they also continue to uphold the following loan terms:

• Live in the home as their primary residence.

• Maintain the home.

• Pay property taxes, homeowner's insurance and other home-related fees like HOA dues. Assuming you uphold all the terms of the loan, a reverse mortgage does not need to be paid back until the borrower dies or leaves the house permanently. Because a substantial percentage of many people's net worth is in their home equity, a reverse mortgage offers one way of leveraging it without selling the home.

As an assurance that they will be repaid on the loan, the lender will put a lien on the property. This is true of any loan that uses equity as a security, including a conventional mortgage. When the loan is repaid, the lien is removed.

Reverse mortgage borrowers fit multiple financial profiles and have a range of reasons for choosing to tap their home equity. These might include everything from wanting to have a reserve fund for the future, investment purposes or to help alleviate cash flow concerns, the idea that they are a loan of last resort is misguided. One of the eligibility requirements of the loan, including meeting the age requirement, being able to fulfill the financial obligations and having sufficient equity, is that all borrowers must undergo a financial assessment by their lender. The financial assessment is meant to determine whether a borrower will be able to meet the financial terms of the loan.

When a reverse mortgage ends, often due to the borrower's death, the loan becomes due and must be paid. The loan balance may be resolved in multiple ways, including through the sale of the home. But, while the executor of the estate will be tasked with choosing how best to settle the reverse mortgage debt, the heirs will not be saddled with any additional debt from the reverse mortgage.

For Home Equity Conversion Mortgages (HECMs), the official name of federally insured reverse mortgages and some proprietary reverse mortgages, heirs have an additional layer of protection in that these loans are non-recourse. This means that should the loan balance exceed the value of the home when it is sold to satisfy the loan, the lender cannot recoup any additional funds from the borrower or their heirs.

Laura Johnson has lived in Tehachapi for 49 years and her family's history in Tehachapi spans over 150 years. Laura has been in lending for 14 years and the real estate industry for 24 years. If you would like more information on a Reverse Mortgage, you can reach Jeff LaMonte at (805) 794-0444 or Laura Johnson at (661) 303-7853 with Nations Lending, 1054-B Valley Blvd.