Reverse home Mortgage

Reverse mortgages are loans available to owners 62 years of age or older that allow them to turn some of the capital in their home into money, ideal to meet their cost of living each month and to fund healthcare (although there is no limitation on how the income can be used).

Borrowers make repayments to the creditor with a conventional mortgage. A reverse mortgage "reverses" this reflux so that the creditor makes repayments to the debtor in the shape of a continuous flow of revenue (annuity), a lump-sum repayment or a line of credit that he can use.

Repayment of the credit is only due after the purchase or evacuation of the building. In the event of the death of the homeowner(s), the mortgage must be repaid either by selling the home or by other means from the borrower's inheritance. When the amount of the credit is greater than the value of the home when the credit matures, the home becomes the ownership of the creditor.

Mortgage Reverse conditions mandates that the borrower continues to pay real estate tax and household contents so that the failure of the mortgage is still possible even though there are no forfeitures. Home-equity conversion mortgages are by far the most common type of reverse mortgage. An HECM is not a State credit, but is granted by a commercial banking institution and covered by the Bundesanstalt für Wohnungswesen.

The HECM programme has seen an increase in default in recent years and it has been found that many borrower are puzzled as to what a reverse mortgage really is (at least in part thanks to the misleading advertisements that are prevalent in these television commercials). Rather than using the loans as a long-term financing instrument, borrower used them as a last resort to overcome a monetary crunch.

Consequently, many HECM programme reform measures were introduced in 2013. Limitation of the amount of funds that may be paid on conclusion or in the first year after conclusion; requirement of a preliminary valuation prior to the grant of credit authorisation so that the borrower can prove its capacity to fulfil all its accommodation commitments such as tax, insurances and upkeep.

Required additional sets for the settlement of real estate tax and insurances from the line of credit as well as for tenure/term settlements for some debtors. From April 2015, changes to the HECM programme will make it mandatory for creditors to carry out a quantitative evaluation of each reverse mortgage lender in order to establish whether the lender has enough funds to bear the running expenses such as land tax and household contents during the entire duration of the mortgage.

Hopefully the changes will enhance the programme and help older people use reverse mortgages in the way they should be used.