Q: What is an reverse mortgage?
A: A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into a tax-free* income – without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home. *Consult tax advisor. Not all products available in all states.
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. Although no monthly mortage payment is required, homeowners are still responsible to pay their homeowner's insurance and taxes.
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. Although no monthly mortage payment is required, homeowners are still responsible to pay their homeowner's insurance and taxes.
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 required. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home. Although no monthly mortage payment is required, homeowners are still responsible to pay their homeowner's insurance and taxes.
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 of Medicare benefits.
Freedom and flexibility. The money you get from a reverse mortgage is your 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 the 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: 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: Are there any limits on how I use the money I receive from a reverse mortgage?
A: You can use the money for 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.
Q: Is there a choice in how I receive the cash from my reverse mortgage?
A: Most definitely. With more 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 choose until the line of credit is exhausted.
- 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 or age or older qualify. There are no income, health or credit qualifications.
Q: I still owe money on a 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 your first or second mortgage. The funds you would receive in the reverse mortgage would be used to pay off whatever existing mortgage you have on the property.
Q: What kinds of homes are eligible for a reverse mortgage?
A: First and foremost, the reverse mortgage 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-to-four unit buildings that are owner- occupied. Some programs grant reverse mortgages on condominiums and manufactured homes built after June 1976. Mobile homes and cooperatives 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 living 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: When will I have to pay the principal ad interests cost of this loan?
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 home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes 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 sale of the house or other assets of the estate.
Q: If I take a reverse mortgage, will I still have an estate that 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 or your heirs. It's important to remember that you can never owe more than the home's appraised value when it is sold. None of your other assets will be affected by your reverse mortgage loan.