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The amount of money the borrower can receive is determined by the age of the youngest borrower, interest rates, appraised value, sale price and the maximum lending limit. It will be specific to your situation. We offer a no obligation assessment. Contact us to discuss.
What types of homes are eligible to be collateral?
Most single-family homes, two-to-four unit owner-occupied dwellings and approved condominiums and manufactured homes are eligible for a reverse mortgage loan. The home must meet FHA minimum property standards.
Am I eligible to take out a Reverse Mortgage?
To be eligible the FHA requires all borrowers on title to be 62 years or older. Borrowers must also meet financial eligibility criteria as established by HUD. If there is an existing mortgage on the home, it must be paid off with the proceeds from the reverse mortgage loan.
What happens if I want my home to be a part of my inheritance?
When the reverse mortgage loan does become due, the borrower’s heirs and/or estate may choose to repay the reverse mortgage loan and keep the home. Or, they can put the home up for sale to repay the loan. If the home sells for more than the balance of the reverse mortgage loan, the remaining home equity passes to the heirs.
If the home sells for less than the owed balance, the estate is not required to pay more than the value of the home at the time the loan is repaid.
A reverse mortgage loan is “non-recourse”, meaning that if you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.
What monthly payments will I have?
You will not have mortgage loan payments, but still need to continue paying property taxes, insurance and HOA dues if any while maintaining the home according to FHA guidelines.
What can I use the money from the Reverse Mortgage loan for?
Reverse mortgage loans are commonly used to pay for home renovations, medical and daily living expenses. Homeowners who have an existing mortgage must use the reverse mortgage loan to pay off their existing mortgage. Ultimately, you can usually use it for anything you need.
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments (for up to life), as a line of credit, or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time.
What is the interest rate on a reverse mortgage and how is it determined?
Interest rates may be fixed or adjustable. Nearly all adjustable rates are based on the LIBOR index.
What fees are associated with reverse mortgages?
Many of the same costs required in a traditional mortgage can be expected, such as origination fee, mortgage insurance, appraisal fee, and closing costs. However, in most cases, these fees and costs are capped, and may be financed as part of the loan.
What if I have an existing mortgage?
You can qualify for a reverse mortgage if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, which means any existing mortgage must be paid off. You must pay off the existing mortgage or any other liens with the reverse mortgage or savings.
Will my government assistance be affected if I get a reverse mortgage?
A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds you receive must be used immediately. Any funds you retain would count as assets and could impact Medicaid eligibility. For more information, you should contact your local Area Agency on Aging or a Medicaid expert.
No monthly payments are due on a reverse mortgage when it is outstanding. The loan is repaid when the last remaining borrower ceases to occupy the home as a principal residence. The amount owed can never exceed the value of your home. If the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.
What is the difference between a mortgage and a reverse mortgage?
What is a reverse mortgage loan?
A reverse mortgage is a loan that allows you to access a portion of your home equity without having to make monthly mortgage payments.1 With this type of loan, you maintain the title to your home. The loan typically becomes due when the last borrower(s) permanently leave the home or the borrower(s) fail to meet the loan obligations1. Provided the home is sold to repay the loan, the borrower will never owe more than the appraised value of the home.
If no monthly payments are required, how is my reverse mortgage loan paid back?
To pay off the loan balance, you or your heirs can sell the home or you can pay the loan balance and keep the home.
How do I qualify for a reverse mortgage loan?
To qualify, you must be age 62 or older and be the titleholder to your home. In addition, you must have sufficient equity in your home and you must meet financial eligibility criteria as established by HUD.
What if I have an existing mortgage?
If you currently have a mortgage, that’s okay. However, a portion of the funds you receive from your reverse mortgage loan (or funds from another source) must be used to pay off any existing mortgage you have on the property at closing.
Your home must be a single-family residence, a 2- to 4-unit dwelling, a FHA-approved condominium, or a manufactured home that meets FHA requirements.
Will I still own my home or will I lose it?
You will still own your home and you can stay in it for as long as you wish, provided you continue to occupy your home as your primary residence, pay your property taxes and insurance, and maintain the home according to FHA requirements.
Are there property and insurance requirements?
Since you still own your home with a reverse mortgage loan you’re responsible for the general maintenance and upkeep as well as for paying all ongoing property taxes and insurance. You can often pay for these expenses with funds from your reverse mortgage loan.
What types of loans are available?
All of our loans are Home Equity Conversion Mortgages (HECM). Always ask to see a comparison of various loans so you have a complete understanding of what is available. Your Reverse Mortgage Advisor can objectively help you decide which of our FHA insured products best fit your needs.
How much of my home’s equity can I access with a reverse mortgage loan?
The loan amounts vary based on a number of factors including which reverse mortgage loan product you choose. The amount you can receive depends on the age of the youngest borrower, current interest rates, and the lesser of the appraised value of your home, the sale price or FHA maximum lending limit. You may need to set aside additional funds from the loan proceeds to pay for taxes and insurance.
After paying off any existing mortgage, the money you receive from your reverse mortgage loan can be used any way you choose such as paying for medical expenses (including in-home care), home improvements, and living expenses. There are no limitations or restrictions, once you receive the net proceeds.
What costs are involved with a reverse mortgage loan?
As with any loan, there are closing and other costs. However, most fees can be financed as part of the loan. The HUD counseling fee is the only out-of-pocket cost.
Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Will this loan affect my Social Security or Medicare benefits?
HECM reverse mortgage loan payments typically do not affect your Social Security or Medicare benefits. However, regulations vary for the Federal Supplemental Security Income program and for state-administered programs such as Medicaid, Aid for Dependent Children (AFDC), and food stamps. We suggest that you consult a benefits specialist at your local Area Agency on Aging or the local offices for these programs to determine how HECM payments may affect your particular situation.
How will I receive the available funds?
The most common way is to draw from a line of credit to use at your discretion. However, you may also choose to receive a single lump sum2, regular monthly installments, or any combination of these options.
Will my family or estate ever owe more than the value of my home?
No. With a FHA-insured3 reverse mortgage loan you’ll never owe more than the appraised value of your home when the loan comes due, so long as the home is sold to repay the loan.
What if I want to leave our home to the kids?
You can still leave it to your children, or to anyone you choose. When the loan becomes due, you or your heirs have the option of paying off the full balance of the loan and keeping the home.
Will I incur any penalties if I decide to pay back the loan early?
No. You can pay back the loan at any time without the worry of being penalized.
If my parents have a reverse mortgage, what should I do in the event of their passing?
You should first contact the loan servicer to notify them that the borrower(s) have passed away. You can typically find the servicer’s contact information on the monthly statement. Once the loan servicer has been notified, they will help you (the heirs) with next steps.
A reverse mortgage sells the home to the bank.
Lenders are not in the business of owning homes — they wish to make loans and earn interest. The homeowner keeps the title to the home in their name. The lender DOES add a lien onto the title to guarantee that they will eventually get paid back the money it lends.
Heirs will not inherit the home
The estate inherits the home as usual, but there will be a lien on the title for the amount of the reverse mortgage loan plus any accrued interest and mortgage insurance premium.
For example, someone takes out a reverse mortgage and owes $50,000 after 5 years. The homeowner passes away and the estate sells the house for $250,000. The lender gets $50,000 and the estate inherits $200,000.
A reverse mortgage is a “non-recourse” loan, which means the borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less. Additionally, no assets other than the home must be used to repay the debt. Non-recourse simply means that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure.
The homeowner could get forced out of the home
The HECM reverse mortgage was created specifically to allow seniors to live in their home for the rest of their lives. The homeowner will not be evicted or foreclosed on as long as the borrower meets the obligations of the loan. For example, the borrower must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
Someone can outlive a reverse mortgage
The reverse mortgage only becomes due when all homeowners have moved out of the property for 12 consecutive months or passed away.
Social Security and Medicare will be affected
Government entitlement programs such as Social Security and Medicare are usually not affected by a reverse mortgage. However, need-based programs such as Medicaid can be affected. It’s best to consult with a qualified financial advisor to learn how a reverse mortgage could impact eligibility of some government benefits.
The homeowner pays taxes on a reverse mortgage
The proceeds from a reverse mortgage are not taxed as income or otherwise (though you must continue to pay required property taxes). Consult a tax advisor for more information.
There are large out-of-pocket expenses
Typically, the majority of lender closing costs and fees can be financed into the reverse mortgage loan.
A reverse mortgage is similar to a home equity loan
A reverse mortgage and a home equity loan both use the home’s equity as collateral; however, there are also some differences. For example,
Any homeowner can apply for a home equity loan. A homeowner must be at least age 62 to be eligible for a reverse mortgage.
A home equity loan typically must be repaid in monthly payments over 5 or 10 years. A reverse mortgage is typically not paid back until the homeowner moves out of the property for 12 consecutive months or passes away.
A home equity loan that charges no closing costs may have a higher interest rate over the life of the loan. A reverse mortgage charges upfront closing costs but generally has lower interest over the course of the loan.
Reverse Mortgage is prohibitively expensive.
While it is true that a reverse mortgage may be more expensive than a traditional “forward” mortgage or home loan, there are several reasons for this – primarily, Mortgage Insurance Premium (MIP), which is guaranteed repayment insurance and the safeguard that ensures you will not owe more than the value of the home upon sale for loan repayment. Further, all fees are disclosed upfront and nothing is hidden in the interest rate.
Another option to a reverse mortgage may be to sell the home. However, when selling, the homeowner incurs high closing costs, realtor commissions (typically 6%), moving costs, and purchase costs on the new home. So, a Reverse Mortgage is no more, and may even be less, expensive than selling the home.
Once loan proceeds are received, the borrower pays taxes on them.
It is a non-taxable transaction. It is a loan.
The borrower is restricted on how to use the loan proceeds.
The cash proceeds from the reverse mortgage loan can be used for any reason. Many borrowers use it to travel, pay off debt, help their children, make a luxury purchase, or to allow investments to recover.
The reverse mortgage lender gets part of the home’s future appreciation.
Reverse mortgage loans, such as the popular HECM, do not participate in the home’s future appreciation.
The home must be free and clear of any existing mortgages.
Many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly payments. Reverse mortgages convert home equity into cash, provided there is sufficient equity in the property.
With a reverse mortgage, the borrower retains title throughout the life of the reverse mortgage loan. The borrower cannot be forced out of the home by the bank unless the borrower fails to meet certain loan obligations such as upkeep on the home and payment of property taxes and insurance.
Only poor people need reverse mortgages.
The perception of the reverse mortgage as assistance for the “poor” borrower is changing. Many affluent borrowers with multi-million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, working closely with financial professionals and estate attorneys to enhance their overall quality and enjoyment of life.
The amount you can borrow is dependent on the age of the youngest borrower and the appraised value of your home or $679,650, whichever is lower.
What types of homes are eligible?
Most single-family homes, two-to-four unit dwellings (with one unit occupied by you), and HUD approved condominiums and manufactured homes are eligible as long as they meet minimum FHA requirements.
Am I eligible to take out a Reverse Mortgage?
You must be 62 years old or better, have sufficient home equity, and demonstrate the ability to meet financial eligibility criteria set by HUD.
What happens if I want my home to be a part of my inheritance?
When the loan is due, your heirs/estate can either choose to pay back the amount due and keep the home or sell the home to pay back the amount due. If the home sells for more than the amount due, the remaining equity goes to your heirs/estate. If the amount due is more than what the house sells for, your heirs/estate do not pay for the difference, because the loan is non-recourse. You will never owe more than the loan balance or value of the home, whichever is less.
What monthly payments will I have?
You will have no monthly payments on the loan, but you must continue to pay for homeowners’ insurance, property taxes, and HOA dues (if applicable).
What can I use the money from the Reverse Mortgage loan for?
You can use the money for almost anything.
You can receive your payment in a lump sum, tenure payments, term payments, a line of credit, or any combination of these.
What is the interest rate on a reverse mortgage and how is it determined?
The interest rates can be either fixed or adjustable. Most of the adjustable rates are determined by the Constant Maturity Treasury (CMT).
What fees are associated with reverse mortgages?
The fees are similar to a traditional mortgage, including origination fees, mortgage insurance, appraisal fee, and closing costs. Many of these fees are capped and may be paid for as part of the loan.
Social Security and Medicare are not affect by your loan. If you are on Medicaid, any reverse mortgage proceeds received must be used immediately. Retained funds would count as assets and could impact your eligibility. You should contact your local Area Agency on Aging or a Medicaid expert for details.
The loan is due when the last borrower no longer occupies the home as a primary residence.