How Reverse Mortgage in California Works

If you’re new to the topic of reverse mortgage in California, but wish to proceed ahead with it, then firstly you should know what reverse mortgage is. In simple terms, reverse mortgage is a financial agreement in which a homeowner relinquishes equity in their home, in exchange for regular payments. So, if you are looking into reverse mortgage in California, then here are a few things you need to know before making any attempts at it.

Mortgage in California Works

How a Reverse Mortgage in California Works

Only individuals who are at least 62 years old and have equity in their home are eligible to take advantage of a reverse mortgage in California. The house does not have to be completely paid off to take out a reverse mortgage, and the homeowner does not need to give up the title of the house. A reverse mortgage gives the lender a sum of tax-free money from their existing home equity. As with any loan, the borrower may be responsible for paying some fees and closing costs when they take out a reverse mortgage.

While drawing on a reverse mortgage in California, the borrower still needs to pay normal property taxes and insurance on the home. Unlike a traditional loan, the interest is not due on a reverse mortgage until the borrower sells or moves out of the home. If the borrower passes away before the reverse mortgage is paid off, the lender will be repaid from the remaining value of the estate. The debt will not be passed on to heirs, and other assets will not be affected.

Reverse Mortgage in California Works

 

Types of Reverse Mortgages

  • FHA-insured mortgage: A Home Equity Conversion Mortgage (HECM) product.
  • Lender- or privately-insured mortgages: These are known as “proprietary” products, but such products are not currently available.
  • Uninsured mortgage products offered by a financial institution or a licensed lender: Again, proprietary products are currently not available.

Reverse Mortgage in California

Regular mortgages can be difficult to understand with all of the taxes and interest over lifetime of the loan. Those in the older demographic might have trouble understanding all the facets of a reverse mortgage in California. Under California law it is required that the lender provides a list of counselors that are nonprofit to discuss the risks and details of a reverse mortgage.

The lender actually is not allowed to accept a finished reverse mortgage application without the borrower acknowledging that they have received counseling. This has helped reduce cases of misunderstanding as well as family of the borrower saying that the lender took advantage of them. In January of 2015 California amended this to change the previous checklist provided to be replaced with a worksheet. This worksheet would go over certain scenarios like what happens after dying with a reverse mortgage or what might happen if you suddenly have to move out.

California also requires a seven-day cool off period from the time the reverse mortgage counseling is completed before any cost can be occurred by a borrower such as ordering the appraisal.

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