37 Question and Answers about Reverse Mortgage Loans
Obtaining a reverse mortgage loan is a big decision. It’s normal for you and your family to have questions and hopefully the answers below can help put your mind at ease
A reverse mortgage is a loan that allows you to access a portion of your home equity and convert it into tax-free retirement funds. 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. Provided the home is sold to repay the loan, the borrower will never owe more than the appraised value of the home
1) Do I have to be a certain age to be eligible for a reverse mortgage?
At least one spouse must be at least 62 years of age or older. The mortgage is based upon the youngest borrower’s age. Recently newer proprietary reverse mortgages allow for ages as low as 55.
2) Will I still retain ownership and title of my home?
Yes. You retain title to your home during the period when you have a reverse mortgage, just as you would with a traditional home mortgage. All we ask is that you, as the homeowner, continue paying property taxes and insurance, maintain the home in good condition, and reside in the home as your primary residence.
3) What types of homes are eligible?
Eligible homes include:
- Single family homes
- 2-4 Unit properties
- FHA approved condominiums
- Townhomes
- Planned Unit Development (PUD)
Property eligibility may vary based on the reverse mortgage product you choose.
4) What are my payout options?
Depending on the product you choose, you can receive a lump sum, monthly payments, access to a line of credit, or a combination.
5) What are the fees or costs involved?
There are reverse mortgage fees and costs associated with the set up, however, these are typically paid using the loan proceeds at closing.
6) How will an adjustable rate affect my monthly payments?
The monthly payment your Receive from the reverse mortgage will be determined at closing, and an adjusting rate will not affect how much you receive each month.
7) Will the reverse mortgage affect my Social Security benefits?
Your Social Security benefits are generally not affected. However, you should always consult your attorney or accountant before deciding on a reverse mortgage.
8) What about Supplemental Security Income and state benefits such as Medicaid?
We always recommend you consult the administrator of these plans, an attorney, and/or an accountant before deciding on a reverse mortgage.
9) Do I still pay property taxes and insurance?
Yes! You are responsible for and must continue to pay property taxes and homeowners insurance.
10) How do I receive my payments?
A. You can receive your payments via monthly check, or by automatic deposit into the account you choose.
11) Who arranges for the appraisal?
The lender will arrange for you to meet with the appraiser. Upon request, a copy of the appraisal will be included in your closing documents or can be emailed to you earlier.
12) What happens to my spouse if I pass away first?
If your spouse is a co-borrower of the loan, he or she can continue to live in the home and continue to receive the existing benefits as long as the home is maintained and taxes and insurance are paid. Repayment would not be required at that time, unless your spouse is not a co-borrower on the loan, or until your spouse passes away or decides to move, at which time the loan balance would be due.
13) What if I decide to sell my home?
As with a traditional mortgage, 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.
14) If my home appreciates during the mortgage term, who will be entitled to that money?
Any money remaining after the mortgage is paid in full goes to you or, upon your death, to your heirs.
15) Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
No. As long as you continue to occupy the property as your primary residence, maintain your home in good condition, and continue to pay your taxes and insurance, you will not be forced to sell or vacate your home – even if the total of the mortgage payments made to you, plus interest, exceed the value of the property. The required Mortgage Insurance Protection (MIP) premium and monthly set aside protects you should your property value experience a decline.
16) What if I move out temporarily, will the loan become due?
General reverse mortgage policy states that if a borrower remains out of the home for 12 consecutive months because of mental or physical incapacity, the loan will become due and payable.
17) When do I repay the loan?
Your loan comes due when the last remaining borrower sells the property, permanently leaves the home, or passes away. In addition, borrowers must continue adherence to the program guidelines.
Note: There are default measures that would require your loan to become due. This information is clearly set forth in the loan documents you receive should you decide on a reverse mortgage.
18) How much will I owe at the end of my loan?
A. All the money borrowed, including any money used to pay the loan’s closing costs, all accrued interest, financial and service fees and MIP required for HECM loans.
19) What if I owe more money than the home is worth?
The HECM and current proprietary reverse mortgage is a “non-recourse loan”. This means that the borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less, and no assets other than the home can be used to repay the debt. This applies only when the borrower or estate chooses to sell the property to pay off the reverse mortgage loan. If the borrower or estate wishes to retain the property, the balance must be paid in full. If there is money left after the existing loan is paid, the borrower or their estate receive the money.
20) Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, you or your estate will repay the loan amount you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
21) How long do the heirs have to sell the property?
They have 6 months. HUD may grant an extension beyond that time as long as property taxes and insurance are paid and the home is maintained in good condition.
22) 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.
23) 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.
24) 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.
25) Is my home eligible?
Your home must be a single-family residence in a 1- to 4-unit dwelling, or a FHA-approved condominium.
26) 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 pay your taxes, insurance and maintain the home according to FHA requirements.
27) 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.
28) 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.
29) 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.
30) How can I use the money?
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 improvement, travel, and living your retirement dreams. There are no limitations or restrictions, once you receive the net proceeds.
31) 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 and appraisal are typically the only out-of-pocket cost.
32) Will I have to pay any taxes?
No, the money you receive is not considered income, and therefore it is tax-free.
33) Will this loan affect my 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.
34) 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 sum, regular monthly installments, or any combination of these options.
35) Will my family or estate ever owe more than the value of my home?
No. With a FHA-insured 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.
36) 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.
37) 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