QandA3Here is PART 2 of the most frequently asked questions about the Home Equity Conversion Mortgage:

May I switch reverse mortgage payment plans in the future?

Yes, for a nominal fee (currently $25), you may switch payment plans at any time.

Will my heirs/children owe anything to my reverse mortgage lender if I die?

Upon your death, the HECM loan balance becomes due and payable if you are the last remaining borrower living in the home. Your heirs may either repay the loan balance or sell the property at “fair market value” through a licensed real estate broker.  When selling, if the loan balance due exceeds the value of the property, your estate owes ONLY the value of the property at that time. Any remaining balance will be forgiven.  No additional financial claims may be made against the estate or your heirs. If your heirs wish to purchase the home any pay the balance owed they may do so.

If my home’s value appreciates during the reverse mortgage mortgage term, who will be entitled to that money?

Under the terms of the HECM, you are legally required to pay back only the outstanding loan balance.  Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs.

What if I decide to sell my home and I have a reverse mortgage on it?

If you choose to sell your home, the outstanding reverse mortgage loan balance becomes due and payable at settlement. You or your estate will receive any proceeds exceeding the loan balance.

If I decide to pay off my HECM loan is there a prepayment penalty?

There is no prepayment penalty on HECM loans. You may pay back the loan anytime. If you have a reverse mortgage that is not a HECM, it could have a prepayment penalty.

Can I sell my home to my children and continue to live in it if I have a reverse mortgage?

If you sell your home to your children or any other individual, the HECM will be due and payable at settlement.  After the loan is repaid, any arrangement for your continued occupancy of the property must be made with the new owner(s). Consult your attorney about the pros/cons of a life estate which may accomplish your goal and is permitted by HUD under the HECM program.

What is the Federal National Mortgage Association’s (“Fannie Mae) role in the HECM program?

Fannie Mae has agreed to purchase adjustable rate HECM loans from lenders who originate them. They provide an active wholesale market for the securities.

Are all reverse mortgage loan officers licensed by my state?

Probably not. Only state regulated loan originators are required to be licensed by a state.  Some nationwide organizations operating Call Centers (telephone origination) are exempt. State licensed originators are screened with a criminal records check and a credit background check in some states and are supervised by a state entity… such as the Commissioner of Banks in Massachusetts. By 2010, it is expected that most states will require loan originators to be registered with the Nationwide Mortgage Licensing System (NMLS). For a map of states presently requiring NMLS registration, go here

Who determines the value of my home for a reverse mortgage?

Under HUD rules, an FHA certified appraisal must be done on your property to establish value.  Appraisal guidelines are very stringent.  Your home must meet FHA standards and the value arrived at could be less than your perceived estimate of full market value.  (Property values in most areas have fallen substantially in recent months.)  The most important thing to remember is that HUD/FHA is not offering to purchase your home… they are simply attempting to arrive at a reasonable, timely, verifiable estimate of value for purposes of the HECM program.  If you are not satisfied with an appraisal you may order a second FHA appraisal (advance payment required) but it is not likely to differ significantly from the original.

See Also Reverse Mortgage Frequently Asked Questions – Part 1

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant

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