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Reverse Mortgage Questions & Answers |
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What is a reverse mortgage?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 becomes due when the last borrower (s) permanently leaves the home. * Consult Financial Advisor. Not all products available in all states. How is a reverse mortgage like a home equity loan? How is it different?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 required monthly mortgage payments for as long as you stay in the home. Will my current income affect my ability to get a reverse mortgage?No. You don’t make monthly repayments with a reverse mortgage, so there are no income qualifications. Will the reverse mortgage affect my Social Security or other Medicare benefits?No. Your benefits will not be affected by the Reverse Mortgage Proceeds. What about SSI and state benefits such as Medicaid?If you receive SSI, Medicaid or other public benefits, these loan advances are counted as “liquid assets” if you keep them in an account past the end of the calendar month in which you receive them. Reverse Mortgage proceeds that you receive must be used immediately so they don’t impact Medicaid eligibility. To be safe, you should contact the local “Area Agency on Aging” or a Medicaid expert. What are the advantages of a reverse mortgage?There are many. Here are a few of the most significant:
*Consult Tax Advisor Will I retain ownership of my home?Yes, you retain title to your home during the period when you have a reverse mortgage, just the same as with a regular home purchase mortgage. 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, hazard insurance, and maintaining the home in reasonable condition - just as they would with a standard first mortgage or home equity loan. Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?Yes. Refinancing can make sense if your home either increases in value, the interest rates drops or the maximum lending limit increases. Keep in mind that when deciding to refinance a reverse mortgage, it is important to compare the amount of benefit versus the cost of the loan before making this decision. The amount of benefit received should be twice the amount of the cost to refinance the loan. Can a reverse mortgage lender take my home away if I outlive the loan?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 as the primary residence and keep the taxes paid and hazard insurance in force. When is the loan due?When none of the borrowers are remaining in the home, the loan is due, or you may choose to pay off the loan early. The family or heirs can sell the house or refinance the house and pay off the loan as with any other loan on the property. How much money can I get from my home?The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, 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. How can I use the proceeds?You can use the money for virtually 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. It is important to know that with adjustable rate mortgages, an increase in the interest rate could affect the amount of money available to borrow in the future and the amount of money owed when the loan becomes due. How do I receive my proceeds and/or payments?You have MANY options:
What if I have an existing mortgage?You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend. For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish. If, however, you only qualify for $85,000, then you would need to come up with $15,000 from your own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, you won't have a monthly mortgage payment anymore. If you find yourself in a deficit situation where you don't have enough money to pay off the existing mortgage, you may use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation (i.e., loan). How safe are FHA insured reverse mortgages?They are TOTALLY SAFE. You or your heirs retain ALL ownership rights. The lender NEVER owns your home. It is impossible to fall behind on payments because there are none to make. And Reverse Mortgages are “non-recourse” mortgages, which means that a debt CANNOT be passed to your heirs as a result of doing an FHA insured reverse mortgage. What if I decide to sell my home?If you choose to sell your home, the outstanding loan balance becomes due and payable. You or your estate will receive any proceeds exceeding the loan balance. What if I move out for a while, will the loan become due?FHA’s policy states that if a borrower is out of the house for 12 consecutive months, he or she will probably not be coming back and the loan becomes due. Will I still have an estate that I can leave to my heirs?When you sell your home or no longer use it as your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest, monthly service fees and any other accrued costs. Any remaining equity belongs to you or your heirs. It's important to remember that you can never owe more than the fair market value of the home when it is sold. None of your other assets will be affected by your reverse mortgage loan. How long do the heirs have to sell the property?As long as the heirs are marketing the property in good faith, the servicer of the loan will allow three-month periods, up to one year on the FHA product. Will I ever owe more than my home is worth?If the borrower or heirs/estate does not wish to retain ownership of the property upon loan maturity, the borrower or heirs/estate will not be required to pay more than the home is worth upon loan maturity. In the event the borrower or heirs/estate decide to keep the home upon loan maturity, the borrower or heirs/estate will be responsible for the full amount owed. What fees / costs are involved in a reverse mortgage?Many of the same costs associated with a regular mortgage apply to reverse mortgages. You will be charged an origination fee, mortgage insurance premium (for FHA Home Equity Conversion Mortgages), third party closing costs (such as appraisal, title and escrow), and a monthly servicing fee. In most cases these fees and costs are capped and may be financed as part of the reverse mortgage, so that you incur little out-of-pocket expenses. |
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