1. What is a reverse mortgage?
Q. What is a reverse mortgage?
A. A reverse mortgage is a loan that enables senior
homeowners, age 62 and older, to convert part of their home equity into
tax-free* income—without having to sell their home, give up title to it, or
make monthly mortgage payments. The loan only becomes due when the last
borrower (s) permanently leaves the home.
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2.
How does a reverse mortgage differ from a home equity loan?
Q. How is a reverse mortgage like a home equity loan?
How is it different?
A. Both a reverse mortgage and a home equity loan use the
equity you have built up in your home to provide you with readily available
cash.
They differ in that with a home equity loan you must make regular monthly
payments of principal and interest. However, with a reverse mortgage you do
not make any monthly mortgage payments for as long as you stay in the home.
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Q. Can
my current income influence my ability to get a reverse mortgage?
A. No. Since reverse mortgage borrowers need not make
monthly repayments, there are no income qualifications. |
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3. What are the
advantages of a reverse mortgage?
Q. What are the advantages of a reverse mortgage?
A. There are many. Here are a few of the most significant:
- Remain independent. A reverse mortgage allows you to
remain in your home and retain home ownership.
- Stay in your home. It allows you to remain in your
home and retain home ownership.
- No monthly mortgage payments. You need not pay back
the reverse mortgage loan nor make any monthly mortgage payments until you
permanently move out of the home.
- Tax-free money. Because the money you receive from a
reverse mortgage is not considered income, it is tax free* and will not
affect your Social Security or Medicare benefits.
- Freedom and flexibility. The money you get from a
reverse mortgage is yours to use in any way you choose.
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Q.
I’ve heard that with a reverse mortgage the lender would own my home. Is
this true?
A. It’s absolutely false. The borrower retains title to the
property. The reverse mortgage lender is merely extending a loan to the
borrower.
Because the homeowners retain title, they remain responsible for the payment
of property taxes, insurance, utilities, home maintenance, and other
expenses — just as they would with a standard first mortgage or home equity
loan.
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Q. Can
I refinance a reverse mortgage, as I would be able to do with a traditional
home mortgage?
A. Yes. Refinancing can make sense if your home increases
in value or interest rates drop. |
Q. Is
it possible for my loan balance to become greater than the value of my home?
A. No. You can never owe more than what your home is worth.
What’s more, since the reverse mortgage is what is known as a "non-recourse"
loan, the lender cannot seek repayment from your income, your other assets,
or your estate. In other words, the house stands for the debt. |
Q. Can
a reverse mortgage lender take my home away if I outlive the loan?
A. No they cannot. And the loan is not due at that time
either. In fact, you don’t need to repay the loan as long as you or another
borrower continues to live in the house and keep the taxes paid and
insurance in force. |
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4. How much money can I get?
Q. How do you determine the amount of cash I am eligible
for?
A. The amount you can borrow depends on several factors,
including your age, the type of reverse mortgage you select, current
interest rates, the location of your home, and the appraised value of your
home and FHA's lending limits for your area. In most cases, the older you
are, the more valuable your home, and the less you owe on it, the more money
you can get. |
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5. How
can I use the money I get from a reverse mortgage?
Q. Are there any limits on how I use the money I receive
from a reverse mortgage?
A. You can use the money for anything you choose, from
daily living expenses, home improvements, healthcare expenses, paying off
existing debts, or simply enhancing your retirement years. For many people,
the money provides a "financial security blanket," in case unexpected
expenses arise. |
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6. In what ways can I receive the money from a reverse mortgage?
Q. Is there a choice in how I receive the cash from my
reverse mortgage?
A. Most definitely. With most reverse mortgages you have a
wide range of payment options, one of which should be ideal to meet your
financial needs.
- You can choose to receive the money all at once, as a lump sum.
- You can receive equal monthly payments as long as one of the borrowers
lives and continues to occupy the property as a principal residence.
- You can choose to receive equal monthly payments for a fixed period of
months.
- You can get a line of credit*; which allows you to take funds at times
and in amounts of your choosing until the line of credit is exhausted.
This is the most popular option, chosen by more than 60% of reverse
mortgage borrowers.
- You can opt for a combination of line of credit with monthly payments
for as long as the borrower remains in the home.
- Or, finally, you can choose a combination of the above.
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7. What requirements or restrictions are involved in the reverse
mortgage process?
Q. Who can qualify for a reverse mortgage?
A. Seniors 62 years of age or older qualify. There are no
income, health or credit qualifications. |
Q. I
still owe money on a first or second mortgage. Can I still get a reverse
mortgage?
A. Yes. You may be eligible for a reverse mortgage even if
you still owe money on a first or second mortgage. The funds you would
receive in the reverse mortgage would be used to pay off whatever existing
mortgages you have on the property. |
Q.
Can I get a reverse mortgage on a second home or resort property I own?
A. Unfortunately no. Reverse mortgages may only be taken
out on your primary residence. |
Q.
What kinds of homes are eligible for a reverse mortgage?
A. First and foremost, the reverse mortgage must be on the
borrower(s) primary residence, that is, where they live most of the year.
Most reverse mortgages are taken on single family, one-unit homes. Some
programs also accept two-to-four unit buildings that are owner-occupied.
Some programs grant reverse mortgages on condominiums and manufactured homes
built after June 1976. Mobile homes and cooperatives are generally not
eligible for a reverse mortgage. Click here to
contact us to determine if
your home is eligible. |
Q.
Would a home that is in a "living trust" be eligible for a reverse mortgage?
A. Yes. In most cases a homeowner who has put his or her
home in a living trust can usually take out a reverse mortgage. A review of
the trust documents would be made by the reverse mortgage lender to
determine if anything in the living trust would be unacceptable. |
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8. What kinds of
reverse mortgages are available?
Q. Are all reverse mortgages the same?
A. No, actually there are three basic types of reverse
mortgages:
- Federally-insured reverse mortgages. Known as Home
Equity Conversion Mortgages (HECM), they are insured by the U.S.
Department of Housing and Urban Development (HUD). They are widely
available, have no income requirements, and can be used for any purpose.
(For more on HECM reverse mortgages,
click here.)
- Government-sponsored reverse mortgages. A Home
Keeper® is Fannie Mae's conventional market alternative to the Home Equity
Conversion Mortgage (HECM). It is a government-sponsored enterprise
program and works like a HECM loan in many ways. However, a Home Keeper®
reverse mortgage addresses a few needs that are not met by HECM loans,
such as individuals with higher property values, condominium owners, and
seniors wishing to use a reverse mortgage to purchase a new home.
- Proprietary reverse mortgages. These are private
loans with unique features that appeal to certain kinds of borrowers.
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Q.
What are the main differences between a HECM reverse mortgage and a
proprietary?
A. In general, the HECM product may offer a higher loan
amount for a lower valued home (for example, under $500,000) depending upon
the loan amount caps in specific counties/MSAs, the amount of equity in the
home, and the age of the borrower. For a higher valued home with significant
equity, a senior may be likely to qualify for a larger cash payout through a
Cash Account Advantage Plan reverse mortgage. Cash Account Advantage Plans
are not currently available in all states. |
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9. When must a
reverse mortgage loan be repaid?
Q. When will I have to pay the principal and interests
cost of this loan?
A. Your reverse mortgage loan becomes due and must be paid
in full when one or more of the following conditions occurs: (a) the last
surviving borrower passes away or sells the home; (b) all borrowers
permanently move out of the home; (c) the last surviving borrower fails to
live in the home for 12 consecutive months due to physical or mental
illness; (d) you fail to pay property taxes or insurance; (e) you let the
property deteriorate, beyond what is considered reasonable wear and tear,
and do not correct the problems. |
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10. What
is owed when a reverse mortgage loan is repaid?
Q. What has to be repaid when the loan becomes due?
A. When the last surviving borrower permanently moves out
of the home or dies, the reverse mortgage loan becomes due. The reverse
mortgage principal, interest charges, and service fees (such as closing cost
fees) are paid from sale of the house or other assets of the estate. |
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11. How will a
reverse mortgage affect my estate?
Q. If I take a reverse mortgage, will I still have an
estate that I can leave to my heirs?
A. When you sell your home or no longer use it for your
primary residence, you or your estate must repay the lender for the cash
received from the reverse mortgage, plus interest and service fees. Any
remaining equity belongs to you or your heirs. It’s important to remember
that you can never owe more than the home's appraised value when it is sold.
None of your other assets will be affected by your reverse mortgage loan. |
Q.
Must the heir or the last surviving borrower sell the property to repay the
reverse mortgage loan?
A. No. Repayment may be accomplished by refinancing the
reverse mortgage with a traditional "forward" mortgage loan, or through the
use of other assets. |
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12. What are the costs and fees?
Q. Other than repaying the principal and interest, what
kinds of fees are involved in a reverse mortgage?
A. Most reverse mortgages have an application fee (which
may cover the cost of a credit report and an appraisal), an origination fee,
closing costs, insurance, and a monthly servicing fee. These charges can be
paid by the reverse mortgage itself, making them no immediate burden to the
borrowers; the costs are added to the principal and paid at the end, when
the loan becomes due.
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Q.
How much cash will I have to come up with to cover origination fees and
other closing costs?
A. One of the real benefits of a reverse mortgage is that
you can use the money you get from your home’s equity (dependent upon final
calculations) to pay for the various fees that are part of the loan costs
overall. The costs are simply added to your loan balance, and you pay them
back, plus interest, when the loan becomes due—that is when the last
surviving borrower permanently moves out of the home or passes away. |
Q.
Are reverse mortgage interest rates fixed or variable?
A. All reverse mortgages have variable rates that are tied
to a financial index and will vary according to market conditions. |
Q.
What is "TALC" and why should I know about it?
A. TALC is short for "Total Annual Loan Cost." It combines
all of the costs of a reverse mortgage into a single annual average rate and
can be very useful when comparing one type of reverse mortgage to another.
Reverse mortgages vary considerably in features, benefits, and costs. It’s
not always easy to compare "apples to apples." If you are considering a
reverse mortgage, be sure to ask the lender or counselor to explain the TALC
rates for the various reverse mortgage products.
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13. Are there tax consequences? What about my Social Security and
Medicare benefits?
Q. What are the tax consequences of a reverse mortgage?
What about my Social Security and Medicare benefits?
A. Because reverse mortgages are considered loan advances
and not income, the IRS considers them to be not taxable. Similarly, having
a reverse mortgage should not affect your Social Security or Medicare
benefits.
If you receive SSI, Medicaid, or other public assistance, your reverse
mortgage loan advances are only counted as "liquid assets" if you keep them
in an account past the end of the calendar month in which you receive them.
You must be careful not to let your total liquid assets become greater than
these programs allow. It may be wise to consult your tax advisor on this.
Another tax fact to bear in mind: interest on reverse mortgages is not
deductible on your income tax returns until the loan is paid off entirely.
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Q. If
I take on a reverse mortgage, how will it affect my government benefits?
A. The funds from a reverse mortgage do not affect regular
Social Security or Medicare benefits. You should discuss the impact of a
reverse mortgage on federal,state or local assistance programs with a
professional advisor, such as your local Area Agency on Aging (toll free at
1-800-677-1116), an independent reverse mortgage consultant*, or a tax
attorney.
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14.
What advice should I get before taking a reverse mortgage?
Q. I understand that I must meet with an unbiased
counselor before completing my reverse mortgage application. What does that
accomplish?
A. This is a federally mandated feature of the reverse
mortgage process and is designed for your protection. The counselor, who is
from an independent government-approved housing counseling agency, explains
in detail the pro's and con's of all your reverse mortgage alternatives. He
or she will discuss a reverse mortgage’s costs and financial implications,
should tell you about any government or nonprofit programs for which you may
qualify, and advise you on any proprietary reverse mortgages that may be
available in your area. |
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