What is a reverse mortgage?
A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older.
A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow money using their home as security for the loan. Also like a traditional mortgage, when you take out a reverse mortgage loan, the title to your home remains in your name. But unlike a traditional mortgage, with a reverse mortgage loan, borrowers don’t make monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home.
Interest and fees are added to the loan balance each month and the balance grows. With a reverse mortgage loan, homeowners are required to pay property taxes and homeowners insurance, use the property as their principal residence, and keep their house in good condition.
With a reverse mortgage loan, the amount the homeowner owes to the lender goes up–not down–over time. This is because interest and fees are added to the loan balance each month. As your loan balance increases, your home equity decreases.
A reverse mortgage loan is not free money. It is a loan where borrowed money + interest + fees each month = rising loan balance. The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home.
Watch out for scams related to reverse mortgages, including:
Contractor Scams
Beware of contractors who approach you about getting a reverse mortgage loan to pay for repairs to your homes. It may be a scam. Don’t let yourself be pressured into getting a reverse mortgage loan.
Scams Targeting Veterans
The Department of Veterans Affairs (VA) does not offer any reverse mortgage loans. Some mortgage ads falsely promise veterans special deals, imply VA approval, or offer a no-payment reverse mortgage loan to attract older Americans desperate to stay in their homes.
You Have a Three-Day Right to Cancel a Reverse Mortgage
With most reverse mortgages, you have three business days after the loan closing to cancel the deal for any reason, without penalty. This is known as your right of rescission. To cancel, you must notify the lender in writing. Send your letter by certified mail and ask for a return receipt so that you have documentation of when you sent and when the lender received your cancellation notice. Keep copies of any communications between you and your lender.
After you cancel, the lender has 20 days to return any money you’ve paid for the financing of the reverse mortgage loan. If you believe there is a reason to cancel the loan after the three-day period, seek legal help to see if you have the right to cancel.
This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loans.
In Virginia, a reverse mortgage, specifically a Home Equity Conversion Mortgage (HECM), is a loan available to homeowners 62 years or older that allows them to convert part of the equity in their home into cash. The title to the home remains in the homeowner's name, and unlike a traditional mortgage, there are no required monthly mortgage payments. Instead, the loan balance, which includes borrowed money, interest, and fees, grows over time as interest and fees are added each month. The loan is typically repaid when the borrower no longer uses the home as their primary residence, often through the sale of the home. Homeowners must still pay property taxes, maintain homeowners insurance, and keep the property in good condition. It's important to be cautious of scams, particularly those targeting veterans, as the VA does not offer reverse mortgage loans. In Virginia, as in other states, borrowers have a three-day right to cancel the reverse mortgage after closing, with specific procedures to follow for cancellation. If issues arise after this period, it is advisable to consult with an attorney to explore any legal options for cancellation.
