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 South Carolina, a Home Equity Conversion Mortgage (HECM) is a type of reverse mortgage available to homeowners aged 62 and older, allowing them to borrow against their home equity without the obligation of monthly payments. The loan balance, which includes interest and fees, grows over time and is typically repaid when the homeowner either moves out or passes away. Homeowners must keep up with property taxes, insurance, and maintain their home, while also using it as their primary residence to qualify for an HECM. It's important to note that reverse mortgages are complex financial products and not simply 'free money.' They can be associated with scams, particularly those targeting specific groups like contractors or veterans. In South Carolina, as in other states, borrowers have a three-day right of rescission to cancel the reverse mortgage without penalty, which requires sending a written notice to the lender. If complications occur beyond this period, it may be necessary to seek legal assistance from an attorney to address the issues.
