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QUESTION:
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What is a Reverse Mortgage?
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ANSWER: |
A reverse mortgage is a safe and easy
way for seniors to turn their home's equity into an additional source of
income to meet ANY financial need. It is a
loan that is available to senior homeowners who are at least 62 years of
age.
Unlike traditional home equity loans, this product
does not require repayment of any kind until the home is sold, or the
borrower permanently leaves their primary residence. |
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QUESTION:
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How do I qualify for a Reverse
Mortgage?
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ANSWER: |
Qualifying for a Reverse Mortgage is
simple. Borrowers need to be at least 62 years of age, own their own
home, have adequate equity in their home, and live in their primary
residence. There are no income or credit
qualifications necessary to be eligible for this loan. This is
beneficial if you are trying to avoid foreclosure or having financial
difficulties. A reverse mortgage can be used to pay the existing
mortgage so you can stay in your home with no payments required as long
as you live in the home. |
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MYTH: I
still owe on my home, so I can't qualify for a Reverse Mortgage.
FACT: If you
have an existing mortgage you can qualify for a Reverse Mortgage.
The existing mortgage(s) must be paid off at the time of closing, and
you may use a portion of the proceeds from the reverse mortgage to do
that. |
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QUESTION: |
Are there any limitations as to how
the proceeds can be used?
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ANSWER: |
Reverse mortgage borrowers may use
the proceeds for whatever they wish. Often,
the monies are used to
- pay for prescription drug costs,
- make needed home repairs,
- pay for home health care,
- travel
- pay property taxes
- pay off debt, including conventional mortgage
and credit cards
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QUESTION: |
How are the proceeds of a Reverse
Mortgage paid to me?
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ANSWER: |
Proceeds are paid in any combination
of the following:
- lump sum
- monthly (tenure) payments - for life of loan
- term payments - for specific period of time
- line of credit - with growth
- modified tenure - combination of monthly
payment and line of credit
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MYTH: The
cash advanced to me from a Reverse Mortgage will affect my other
retirement benefits, such as Social Security, Medicare, or my pension.
FACT: The
cash advanced to you from a Reverse Mortgage will NOT affect these
benefits. However, confer with you tax advisor as each individual's
situation differs. |
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QUESTION: |
Why should I consider the Reverse
Mortgage?
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ANSWER: |
Just a handful of the many benefits
to a reverse mortgage include:
- it unlocks the equity built into the home
- there are no income or credit qualifications -
you can qualify even if you are in foreclosure or collection
- the proceeds received as tax-free income
- FHA Insured or Fannie Mae guaranteed
- growth on the credit line option
- no debt passes to your heirs
- it does not affect Social Security or Medicare
benefits
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QUESTION: |
How much money can I expect to
receive as a Senior Homeowner?
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ANSWER: |
How much money a borrower receives
from the reverse mortgage depends upon their age, the value of their
home, and the interest rate. The older the
borrower and the higher the home value = the more money they are
eligible to receive. |
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MYTH: The
bank can take my house if I have a Reverse Mortgage.
FACT: The
bank can never take your house with a Reverse Mortgage!
Because a Reverse Mortgage is just a loan against the property,
the homeowner retains full ownership and the Reverse Mortgage is just a
lien.
The lender is only repaid the loan balance or the home value, whichever
is less. |
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QUESTION: |
Exactly how "safe" is the reverse
mortgage?
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ANSWER: |
Reverse mortgages are a very safe
income option for the senior homeowner.
Remember that:
- the borrower(s) name remains on the title to
the home
- debt owed on the loan does not pass to heirs
- the borrower will never owe more than the loan
balance OR the value of the property - whichever is LESS
- Reverse Mortgages are strictly regulated by the
Department of Housing and Development and industry associations like
AARP and NRMLA (National Reverse Mortgage Lenders Association)
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QUESTION: |
Are there any types of homes that do
NOT qualify for a Reverse Mortgage?
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ANSWER: |
Yes. The following types of homes do
NOT qualify for a Reverse Mortgage: vacation homes, secondary homes,
mobile and manufactured homes which are not fixed to a permanent
foundation, rental properties which encompass more than 4 units and
homes on leased lands. |
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MYTH: I want
to take out a Reverse Mortgage, but I can't afford to pay closing costs.
FACT: There
are upfront costs with a Reverse Mortgage; you are responsible for an
origination fee and actual closing costs, including fees from the title
and escrow companies. However, these amounts can be financed as part of
the loan, resulting in
NO OUT-OF-POCKET-COSTS AT CLOSING. |
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QUESTION: |
What is my tax burden from the
proceeds of a reverse mortgage?
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ANSWER: |
At this time, the IRS does not regard
the proceeds of a reverse mortgage as taxable income. However, confer
with your tax advisor as each individual's situation differs. |
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QUESTION: |
Will a Reverse Mortgage affect my
eligibility for SSI or Medicaid?
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ANSWER: |
These benefits will NOT be affected
by the proceeds of a Reverse Mortgage IF the monthly cash advances are
completely spent in that month and not accumulated. These rules do vary
state to state, so check with the local Area Agency on Aging, and also
confer with your tax advisor. |
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MYTH: The
house will have to be sold to repay the Reverse Mortgage loan.
FACT:
Refinancing the home by means of a conventional mortgage
can satisfy the Reverse Mortgage Loan.
Your heirs can choose to keep the home if they wish. |
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QUESTION: |
How much is due at the end of the
loan?
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ANSWER: |
The cash advances that have been
received, and the accumulated interest are due at the end of the loan
(when you permanently leave the home). |
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QUESTION: |
Is the interest on my reverse
mortgage loan principal tax deductible?
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ANSWER: |
The interest accrues and is tax
deductible when the loan balance and interest is repaid. This happens
when the borrower permanently leaves the home. However, confer with your
tax advisor as each individual's situation differs. |
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MYTH: I can
owe more than my house is worth!
FACT: A
reverse mortgage is a "non-recourse" loan.
The borrower can never owe more than the value of the home,
regardless of the loan balance. |
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QUESTION: |
My home is in a living trust. Can I
take out a reverse mortgage?
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ANSWER: |
The answer is usually yes, subject to
review of the trust documents. |
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QUESTION: |
What are my responsibilities, as the
homeowner?
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ANSWER: |
You must pay your property taxes
(which you can do with Reverse Mortgage proceeds), maintain the home,
retain property insurance, and notify the lender if you will be away
from the property for an extended period of time.
You are also required to attend a free, but mandatory
counseling session by a FHA or Fannie Mae approved reverse mortgage
counselor. |
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QUESTION: |
When does the loan become due and
payable?
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ANSWER: |
The loan is due and payable when the
borrower sells the property, permanently leaves the home, or dies. In
the case of a couple, repayment is activated when the second person
moves out or dies. |
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QUESTION: |
What are the property requirements of
a Reverse Mortgage?
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ANSWER: |
The property must be single family (1
- 4 units eligible for HECM type loans only)
The borrower must occupy the home as their primary
residence
Condos and PUD's are eligible if FHA/Fannie Mae
approved
Properties must meet minimum FHA/Fannie Mae
guidelines. |
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QUESTION: |
What are the three reverse mortgage
programs available to me?
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ANSWER: |
1. FHA Home Equity
Conversion Mortgage, or "HECM" This type of
loan is insured by the FHA (Federal Housing Administration), a division
of the US Department of Housing and Urban Development (HUD).
The loan amount
is based upon your age and the value of the home. HUD regulates the
amount of each individual loan, as well as limiting the maximum amounts
allowed according to the area of the country. This type of reverse
mortgage limits the loan costs.
The government guarantees that the lender meets its' obligations.
Many consumers choose the HECM loan
because of the credit line growth option. The rate at which the credit
line grows is equal to the current interest rate being charged on the
loan plus 0.5%.
Unlike other reverse mortgages with
the same costs, the cash received from a HECM loan can be used for
any purpose. HECM loans also usually provide the largest loan
cash advances compared to other reverse mortgage programs
Cash can be advanced to you in three
ways:
- a single lump sum of cash.
- a line of credit for a specific amount from which you decide when
and how much to withdraw. The line of credit grows over time.
- as a monthly payment made to you over a specified amount of time or
as long as you live in the home.
Borrowers can select from one or all
of these options, and can change their selection at any time during the
loan period, providing further flexibility to the HECM loan.
HECM loans account for the majority
of reverse mortgages originated.
2. Fannie Mae "Home
Keeper" Mortgage
This type of reverse loan is
guaranteed by Fannie Mae, it is not insured by the FHA.
Cash can be advanced to you in three
ways:
- a single lump sum of cash
- a line of credit for a specific amount from which you decide when
and and how much to withdraw. The line of credit does NOT grow.
- as a monthly payment made to you over a specified amount of time or
as long as you live in the home.
Borrowers can select from one or all
of these options, and can change their selection at any time during the
loan period.
3. "Jumbo" Reverse
Mortgage Products
These loans are not insured by the
FHA, they are guaranteed by the company from which they are issued.
Cash can be advanced to you in three
ways:
- a single lump sum of cash
- a line of credit for a specific amount from which you decide when
and and how much to withdraw. The line of credit does NOT grow.
- as a monthly payment made to you over a specified amount of time or
as long as you live in the home.
The main advantage of this type of
product is that there are no limits to the amount of the cash advanced,
in some cases going over $1,000,000 when the value of the home is
sufficient. Also they can have no closing costs. |
