How Do Reverse Mortgages Work?

by Gerri Detweiler

Join me as I talk with a reverse specialist about how reverse mortgages work, including pros and cons of reverse mortgages. You'll learn surprising ways these loans are used, including to ensure a more comfortable retirement, to help protect your inheritance, and even to help homeowners get out of foreclosure!

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Excerpt From This Podcast


Gerri: Russell let’s talk about the misconceptions about reverse mortgages. One of the things that I’ve heard in the past about reverse mortgages is that once you do one of these loans, you don’t own the home anymore, the bank owns the home.

Russell: Right and I hear that all the time. I probably hear that just about every week from people. And (the truth) couldn’t be more opposite of that. You own your house just like if you take a mortgage to purchase a house. You own the house, the deed remains in your name. It never changes, the bank does not own the house.

Gerri: One of the things that I learned from talking with you is about what happens when you do finally pass away. If you have a reverse mortgage, I was surprised to learn the flexibility that is available with one of these loans to the heirs that inherit the house. Tell us how it works.

Russell: That’s right. Actually, the government provides the seniors and their heirs with more protection than if they would do a conventional or any type of FHA or VA forward mortgage. When you pass away with a reverse mortgage, your heirs will have 12 months to try to get your affairs in order and still nobody’s required to make any payments. And then in the end of the 12 months, they would decide whether to refinance the house under them or sell off the house.

Whereas on a forward mortgage if somebody passes away and the payment stops, generally the banks can start foreclosure proceedings against the estate within 60 days. Another way that the government protects the heirs is that these loans are non-recourse, and this is a very important thing that a lot of people really need to understand better.

What this means is that, if the homeowner passes away - especially in a down market that we’ve all been experiencing - say the house is worth $200,000 but at the time that the homeowner passes away, they owe $250,000 because of a down market and a combination of things. Even if the estate has hundreds of thousands of dollars in savings accounts, in money markets, whatever the case is, on a reverse mortgage the bank cannot go after the estate for the shortage.

But on a forward mortgage, or a regular mortgage, if somebody dies and the bank gets wind that there’s money in the estate, they can go after that money in the estate to cover the shortage. On a reverse because it’s a non-recourse loan, the banks cannot approach the estate for the shortage. That’s a very important thing and really protects the families.

Listen to the full reverse mortgage interview here.

About My Guest


Russell Silver, a senior residential mortgage consultant with US Mortgage has been assisting home owners and home buyers for over 20 years. His goal is to not only to approve his clients’ quality of life with the right loan for their situation, but also use his experience and help educate them with all aspects of home financing.

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