A large number of older home owners who have bought their home with a reverse mortgage are now facing foreclosure. Borrowers, age 62 or older, have the opportunity of converting part of the equity in their homes into cash, without having to worry about paying it back. When the borrower dies, his or her heirs have the option to sell the home and cash out the remaining equity, pay back the loan and keep the property, or refinance.
Not requiring a credit score makes applying for a reverse mortgage very easy for all senior home owners, but it also makes it very easy for them to become delinquent on their reverse mortgage.
What Is the Cause of Reverse Mortgage Delinquencies?
When applying for a reverse mortgage, borrowers have a few options: receive the whole amount at once, start a line of credit similar to a credit card, or receive regular monthly payments. On a conventional loan, when the borrower takes out a home-equity line of credit, he or she will be required to make monthly payments. Reverse mortgages don’t require monthly payments, but they will be due when the owner dies or the home is sold.
Delinquencies occur when the home owner is unable to pay property taxes and homeowner’s insurance anymore. Paying these property charges is especially difficult for home owners who choose to take all the money upfront on a reverse mortgage, leaving them with very little money for taxes and insurance in the following years. Another group of seniors, the younger borrowers, are at risk of becoming delinquent on their mortgages, according to Federal Housing Administration (FHA) officials, who have come to the conclusion that most delinquencies will occur in the first four years of the loan.
What to Do If You Are Delinquent on Your Reverse Mortgage
Lenders are required to give you free financial counseling if you are behind on your property tax and insurance. You should act quickly, because the next step after falling behind on your payments is to go into default, then be evicted. Unfortunately, many seniors don’t realize that there are programs designed to help them avoid becoming delinquent on their reverse mortgage, or simply fail to act on time, and end up losing their homes.
If you receive a notice from your lender, acting quickly is the most important thing you can do. If you can’t afford to pay your property taxes and insurance, talking to a financial counselor is very important, and could possibly help you get back on track, while keeping your home. If you have the money to pay your property taxes and insurance, then your first step should be to contact your lender and find out if you should send the money directly to the tax authority and insurance company, or if your lender has already paid what was owed on your behalf, in which case you should send them your payment.
Losing a home is a very unpleasant situation, no matter what your age is. Unfortunately, because they don’t work anymore, seniors who take out a reverse mortgage are at a greater risk of running out of money, falling behind on their property tax and homeowners’ insurance payment, and eventually lose their home. However, with the help of several programs, senior home owners can get the counseling that they need in order to get back on track with payments, and avoid losing their homes.