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. You also have to have enough income to qualify for a home equity where
there are no income qualifications on a Reverse Mortgage.
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.
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 or make any monthly mortgage payments until you permanently
move out of your 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.
*Consult tax advisor
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.
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 the 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 do not 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.
Q: How much money do I get? 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.
Q: How can I use the money I get from a reverse mortgage?
A: You can use the money for anything you choose, from
daily living 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.
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. •
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 my 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: Yes, under the jumbo mortgage program.
Q: What kinds of homes are eligible for a reverse mortgage?
A: First and foremost, the reverse mortgage (HECM)
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-four unit buildings that are owner
occupied. Some programs grant reverse mortgages on condominiums and manufactured
homes built after June 1976. Mobile homes are generally not eligible for
a reverse mortgage.
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 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.
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. This is the Reverse Mortgage that is done
over 90% of the time.
- Government-sponsored reverse mortgages. A Home Keeper R is Fannie
Mae’s conventional market alternative to the Home Equity Conversion
Mortgage. It is a government-sponsored enterprise program and works
like a HECM loan in many ways. However, a Home Keeper R reverse mortgage
addresses a few needs that are not met by HECM loans, such as individuals
with higher property values, and condominium owners.
- Proprietary reverse mortgages. These are private loans with unique
features that appeal to certain kinds of borrowers. An example of such
reverse mortgages, which are backed by the companies that develop them,
is a Cash Account Advantage Plan.
Q: What are the main differences between a HECM reverse
mortgage and a proprietary product like the Cash Account Advantage Plan?
A: In general, the HECM product may offer a
higher loan amount for a lower valued home (for example,
under $500,000) depending on the loan amount caps in specific
counties/MSA’s, 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.
Q: When must a reverse mortgage loan be repaid?
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 house for 12 consecutive months due to physical
or mental illness; (d) you fail to pay property tax or
insurance; (e) you let the property deteriorate, beyond
what is considered reasonable wear and tear, and do not
correct the problems.
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
the sale of the house or other assets of the estate.
Q: If I take a reverse mortgage, will I still have an estate
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 and your heirs. It’s important to remember
that you can never owe more than your 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 of 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.
Q: What are the costs and fees?
A: Most reverse mortgages have an application
fee (which may cover the costs of a credit report and an
appraisal), an origination fee,HUD counseling 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.
Q: How much cash will I have to come up with to cover origination
fees and other costs?
A: One of the real benefits of a reverse mortgage is that you
can use the money you get from the home’s equity (dependant 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 house
or passes away.
Q: Are reverse mortgage rates fixed or variable?
A: Most reverse mortgages have variable rates
that are tied to a financial index and will vary according
to market conditions. There is also a fixed rate available.
With the fixed rate, you must take all funds out up front.
(no monthly payments or credit line)
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 have 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 received them. You must be careful to not 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.
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, and local assistance programs with a professional
advisor such as your local Area Agency on Aging, an independent reverse
mortgage consultant, or a tax attorney.
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 the 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 in your area. |
