Several years ago, the phrase “reverse mortgage” conjured for many people scary images of naive, elderly property owners robbed of their homes by ruthless, fraudulent lenders. However true that may have been in the past, the fact now is that countless eligible seniors have benefitted, and continue to benefit, from the financial security of reverse mortgages given and regulated under strict federal and state laws. Even better news for eligible New York homeowners is that reverse mortgages are fully exempt from mortgage recording taxes.
What exactly is a reverse mortgage? The basic framework of a reverse mortgage is the same as a conventional mortgage: the bank lends money to homeowners by using the home as collateral. A mortgage is recorded to secure the bank’s interest in the home, and the amount of the loan is based on the home’s equity, which has typically accumulated over many years. That, however, is where the similarity ends. Reverse mortgages are given to borrowers in a lump sum, in monthly payments for a fixed term or for as long as the borrowers live and occupy the home, as a line of credit, or in some combination of these options. As long as borrowers maintain the requirements for the loan, they do not make payments back to the bank. It bears repeating: the borrowers do not make payments back to the bank. Of course, the bank does receive repayment eventually. Reverse mortgages become payable upon a few events: the death of the last borrower, the borrower’s failure to reside in the home, and failure to maintain repairs, or pay taxes or insurance. The amount that must be paid back to the bank will be the original loan amount plus amortized interest. However, in no event can the amount of the loan be higher than the current market value of the property. Homeowners who have financially independent children or no heirs depending upon a house inheritance can therefore benefit now from the years of work building their home’s equity, without worrying that a future inheritance will be negated by outstanding debts.
The purpose of reverse mortgages is to provide older homeowners who may have little or no other form of income with necessary living expenses. There are however strict limitations on eligibility for these loans. First, all of the homeowners must reside at the property, which must be classified as a 1-4 family property. Residential condominium apartments meet this definition, but cooperative apartments, mixed-use properties, and larger apartment buildings do not. Federal law requires that the youngest homeowner must be at least 62 years of age, but in New York, homeowners as young as 60 are eligible for a reverse mortgage.
Another advantage to New York reverse mortgages, mentioned above, is the full exemption from New York’s mortgage recording tax. At closing, the title company attaches a Section 252-a Affidavit to the mortgage which lists each requirement and confirms that they have been met. Proceeds of reverse mortgages are not considered income for purposes of determining eligibility for SSI benefits, veteran’s assistance, and any other public assistance governed under the Social Services Law.
Prepayment is allowed without penalty, only authorized lenders are permitted to offer these loans, and these lenders are governed by strict counseling and disclosure requirements. These advantages, and others, make reverse mortgages a sound financial decision for the right homeowner.
If you have any questions or want to talk to one of our NY Title Insurance experts as it pertains to a pending reverse mortgage feel free to call our offices or email firstname.lastname@example.org.
About World Wide Land Transfer:
World Wide Land Transfer is a full service Settlement and Escrow Company also providing comprehensive title insurance services for all forms of real estate transactions ranging from a home purchase or refinance to the most complex commercial transaction. World Wide Land Transfer is ready, willing and able to answer any questions as they pertain to the potential issuance of title insurance of a deed in lieu. World Wide Land Transfer started predominantly as a PA Title Company in 2004 but grew quickly and started issuing NJ Title Insurance, NY Title Insurance, MD Title Insurance, VA Title Insurance and FL Title Insurance. World Wide now covers most counties throughout the nation.