A reverse mortgage, specifically a Home Equity Conversion Mortgage (HECM), offers a unique opportunity for homeowners aged 62 and older to access the equity they’ve built in their homes without selling. It can provide financial flexibility during retirement, but it’s not a free pass. Understanding and fulfilling your responsibilities as a borrower is paramount to avoid foreclosure and safeguard your financial future.
This guide will walk you through the three core responsibilities of a reverse mortgage borrower, providing clear explanations and actionable advice.
The Three Pillars of Reverse Mortgage Responsibility
As a reverse mortgage borrower, you have three primary obligations:
- Timely Property Charge Payments: You must pay your property taxes, homeowners insurance, and, if applicable, flood insurance on time.
- Maintaining Your Home: You are responsible for keeping your home in good repair.
- Principal Residence Requirement: Your home must remain your principal residence.
Deep Dive into Your Responsibilities
1. Paying Property Taxes and Homeowners Insurance: The Financial Safety Net
One of the most critical aspects of a reverse mortgage is ensuring the ongoing payment of property taxes and homeowners insurance. Failure to do so can lead to foreclosure, even if you’re otherwise adhering to the loan terms.
Financial Assessment: A Key Determinant: Before your loan is finalized, the lender conducts a financial assessment to determine your ability to manage these expenses. This assessment considers your credit history, property charge payment history, and residual income.
Payment Options: Tailored to Your Situation: Based on the financial assessment, you’ll have different options for managing property charge payments:
- Direct Payment: If your financial assessment indicates sufficient resources, you can choose to pay these charges directly.
- Servicer Payment: You can authorize your loan servicer to pay these charges using funds from your reverse mortgage.
- Set-Aside Account: If the lender deems it necessary, a portion of your loan proceeds will be set aside in a reserve account to cover property taxes and homeowners insurance. The lender might pay these charges directly from the reserve or send you the funds to make the payments yourself.
Important Note: Always review your monthly account statements to understand how your property charges are being handled. If you’re unsure about whether a set-aside account was established, contact your lender or servicer immediately.
What if the Reserve Runs Out? If the reserve account can no longer cover your property taxes or homeowners insurance, your lender will notify you, and you’ll need to take immediate action to ensure these payments are made. This might involve drawing additional funds from your line of credit (if available) or making the payments yourself.
Legacy Loans: If your reverse mortgage was originated before April 27, 2015, a financial assessment may not have been conducted. In these cases, it’s crucial to proactively budget and ensure timely payment of your property taxes and insurance, unless specific arrangements were made at closing.
2. Home Maintenance: Preserving Your Investment
Maintaining your home in good repair is not just about preserving its value; it’s a contractual obligation under your reverse mortgage. Neglecting necessary repairs can lead to foreclosure.
Inspections: Your lender or servicer has the right to inspect your home, provided they give you notice and specify the reason for the inspection.
Repair Requirements: If the inspection reveals necessary repairs, the lender or servicer will notify you. Generally, you’ll have 60 days to begin the repairs from the date of notification. Keep detailed records of all communications and repair work.
Seeking Assistance: If you’re struggling to afford necessary repairs, don’t hesitate to seek help. Contact your local Area Agency on Aging (AAA) to explore assistance programs that may be available. You can find your nearest AAA by calling (800) 677-1116 or visiting eldercare.acl.gov.
Beware of Scams: Be wary of contractors who approach you unsolicited with reverse mortgage offers to fund home repairs. Always explore all your options and avoid being pressured into borrowing money for repairs.
3. Principal Residence: Where You Call Home
To maintain your reverse mortgage, your home must be your principal residence. This means it’s where you spend the majority of the year, and you can only have one principal residence at a time.
Absence Limitations: There are limitations on how long you can be away from your home.
- Absence of 2-6 Months: If you’re away for more than two months but less than six months and no co-borrower lives in the home, notify your lender or servicer to confirm that you still consider the home your principal residence.
- Absence of More Than 6 Months (Non-Medical): If you’re away for more than six months for non-medical reasons and no co-borrower lives in the home, your home is no longer considered your principal residence, and the loan may become due and payable. This means you’ll need to repay the loan, typically by selling the property or through a deed-in-lieu of foreclosure.
- Absence of More Than 12 Months (Healthcare Facility): If you’re in a healthcare facility (hospital, rehabilitation center, nursing home, assisted living facility) for more than 12 consecutive months and no co-borrower lives in the home, your home is no longer considered your principal residence, and the loan may become due and payable.
Co-Borrowers: If there’s a co-borrower on the loan and you permanently move for any reason, the co-borrower can continue to live in the home and receive loan payments as long as they fulfill the reverse mortgage requirements.
Protecting Your Reverse Mortgage: Proactive Steps
Here are some proactive steps you can take to protect your reverse mortgage and avoid potential problems:
- Communicate with Your Lender: Keep your lender or servicer informed of any changes in your circumstances, such as extended absences or financial difficulties.
- Review Your Loan Documents: Familiarize yourself with the terms of your reverse mortgage, including your responsibilities and the lender’s rights.
- Seek Professional Advice: Consider consulting with a financial advisor or housing counselor to get personalized guidance on managing your reverse mortgage.
- Find us on Google Business Profile: https://bit.ly/gbp-rmriverside
By understanding and fulfilling your responsibilities as a reverse mortgage borrower, you can enjoy the benefits of accessing your home equity while safeguarding your financial security and your home. Don’t hesitate to seek help if you’re facing challenges – resources are available to support you.