Education Specific to the Reverse Mortgage in California

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Reverse Mortgage Basics


To Get Specific Answers To Your Particular Reverse Mortgage Questions
What is a Reverse Mortgage?

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The first and easiest way to think of a reverse mortgage is to NOT separate it from any other mortgage that exists. It is not a "whole different animal". The truth is reverse mortgages are very similar in structure to forward mortgages.
The difference though lie in these three considerations:

  1. Reverse mortgages are open ended, meaning they have no set end date. In determining this end date, here are the basic rules:

    A. Last surviving borrower dies.
    B. Borrower(s) sell property
    C. Borrower(s) leave property for 12 consecutive months

    Heirs or borrower(s) above have up to 12 months to pay lender back, (re-finance), or sell home.

  2. Borrower has no obligation to make monthly or periodic payments to the lender. Instead of the mortgage company receiving a monthly interest payment (forward mortgage), a reverse mortgage lender receives interest on the note after the loan ends as described in #1 above.
  3. A reverse mortgage loan amount is based upon three different factors all combined into one mathematic formula:
    A. Appraised value of the property
    B. Interest rate
    C. Age of the youngest borrower

Unlike a typical forward mortgage, the reverse mortgage lender has no care about credit scores, income, debt load or anything else related to the borrower's propensity to pay back the loan. It is really all about how much equity the property will have at the supposed end of the mortgage. Remember, equity is the only thing that secures the lender's investment in the reverse mortgage since the borrower likely will not be making monthly or periodic payments.

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