When mortgages reverse

The devil's in the details

WHY IS IT CALLED A REVERSE MORTGAGE?

It's the exact opposite of a traditional mortgage. Rather than the borrower making monthly mortgage payments, the lender pays the borrower. Income and credit history are irrelevant.

Instead, the mortgage is based on the equity -- the home's value minus debt -- the homeowner has in the home.

The amount borrowed must be repaid, plus interest, when you die, sell your home or move out. If the home is worth less than the loan amount, the Federal Housing Administration makes up the difference. That's one reason why mortgage insurance is required.

With a traditional mortgage, the amount you owe decreases over time, and your equity increases. With a reverse mortgage, your debt rises over time, and your equity can diminish.

CAN ANYONE GET A REVERSE MORTGAGE?

Almost all lenders require borrowers to be 62 or older. You also must own your home outright or be able to pay off your existing mortgage with the money received from a reverse loan.

HOW DO I GET MY MONEY?

You can opt for a lump sum, monthly payments, a line of credit or any combination of the three. In the case of a line of credit, you aren't charged interest until you actually borrow the money.

HOW MUCH CAN I BORROW?

It depends on your age, the current interest rate and the appraised value of your home. In general, the older you are and the more valuable your home is, the more you can borrow.

Borrowers typically can borrow 45 percent to 75 percent of the equity in their home, said Peter Bell, president of the National Reverse Mortgage Lenders Association.

A number of Web sites offer calculators that provide estimates of how much you might be able to borrow with a reverse mortgage. One is available from AARP at www.rmaarp.com/.

Loan amounts are capped on loans insured by the Federal Housing Administration, which accounts for about 90 percent of reverse mortgages. The limits range from $200,160 to $362,790, depending on the housing market.

In Wake and Johnston counties, the limit is $224,200; in in Durham and Orange counties, $237,500. Other counties' limits can be found at https://entp.hud. gov/idapp/html/hicost1.cfm.

Legislation pending in Congress calls for raising the reverse mortgage limits to a single, national standard: $417,00.

WHAT FEES ARE INVOLVED?

The up-front costs of a reverse mortgage are higher than in traditional mortgages.

In the Triangle, up-front costs on loans typically are $5,000 to $10,000, said Christena Schafale, director of information services for Resources for Seniors, a Raleigh nonprofit group that is a government-approved counselor for seniors interested in obtaining reverse loans.

But you don't need that amount of cash to get a reverse loan. The costs can be rolled into the mortgage.

Among the costs of FHA-insured loans is an origination fee that amounts to 2 percent of the loan limit or the home's appraised value, whichever is less.

A mortgage insurance premium fee tacks on 2 percent of the loan limit or the home's appraised value, whichever is less. Half of a percent is added to the annual interest rate charged on the loan balance.

Other closing costs commonly charged include fees for document preparation, title search, title insurance and surveying.

WHAT ABOUT MY HEIRS?

The debt from a reverse mortgage never can exceed the value of your home, so none of the debt will pass on to heirs. Heirs will inherit the remaining equity in the home. But the amount of equity is diminished by the debt.

WHY IS COUNSELING REQUIRED?

Because of the risks involved, you must receive counseling before you apply for a loan. Residents in other states generally can get such counseling over the phone, but North Carolina requires face-to-face counseling. To find the nearest government-approved counseling agency, contact the FHA at (800) 569-4287 or www.hud.gov/offices/hsg/sfh/hecm/ hecmlist.cfm.

CAN A LENDER FORECLOSE ON A REVERSE MORTGAGE?

Yes, if you fail to maintain your house or fail to pay your property taxes.

WHO OFFERS REVERSE MORTGAGES?

A list of lenders that offer FHA-backed reverse mortgages is at www.hud.gov/ll/code/llplcrit.html. Enter your city or state and put a check under "reverse mortgage (HECM)," then click "submit."

WHERE CAN I GET MORE INFORMATION?

Consumers can contact AARP for a copy of its publication on reverse mortgages at (800) 209-8085 or www.aarp.org/revmort.