FHA reverse mortgages or Home Equity Conversion Mortgages (HECM) come with a number of guarantees and protections that are part of the FHA (Federal Housing Administration) insurance. The FHA insurance provides the following protection and peace of mind to the borrower and their children:
- The borrowers will never owe more than the home’s fair market value
- If the loan balance ever grows higher than the loan balance, FHA pays the lender the difference when the last borrower dies or leaves the home.
- Payments taken from the bank holding the reverse mortgage are guaranteed. If the bank ever goes into default, the payments are guaranteed to be made by FHA.
- If the loan balance grows higher than the home’s value, the lender cannot take title. FHA insures that you can live in your home as long as the basic loan obligations are met (insurance and property taxes, etc.).
- However, the estate could owe taxes on any loan balances forgiven.