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Common Questions about Reverse Mortgages
Q: What is a reverse mortgage?
A: A reverse mortgage is a loan that enables homeowners age 62 or older to convert a portion of their home equity into tax free* income without having to sell, give up title or make monthly payments.*consult a tax advisor
Q: How does a reverse mortgage differ from a home equity loan?
A: Both a reverse mortgage and a home equity loan use the equity you have in your home to provide you with available cash.
They differ in that a home equity loan requires you make regular monthly payments of principal and interest. Unlike a home equity loan, with a reverse mortgage your home can not be taken from you. If you default on a home equity loan, you could lose your home. A reverse mortgage does not require any monthly payments for as long as you stay in the home.
Additionally, a reverse mortgage does not require any credit or income qualification while an equity loan does.
Q: What are the benefits of a reverse mortgage?
A: There are many benefits to a reverse mortgage; here are a few:
- Stay in you home
- No Monthly payments
- Tax-free income
A reverse mortgage allows you to remain in your home and retain ownership. You need not pay back the reverse mortgage loan nor make monthly payments until you permanently move out of the home. 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. The money you get from a reverse mortgage is yours to use in any way you choose.
Q: Does the lender own my home?
A: No. The borrower retains title to the property.
Q: Is it possible for my loan balance to become greater than the value of my home?
A: You can never owe more than your home is worth. Reverse mortgages are “non-recourse” loans, which means that in seeking repayment the lender does not have recourse to anything other than the home. Not income, not any other assets, not heirs.
Q: Can a reverse mortgage lender take my home away if I outlive the loan?
A. No! A borrower cannot outlive a reverse mortgage! Nor is the loan due. It does not have to be repaid as long as one of the borrowers continues to live in the house, keeps the taxes and insurance current and maintains the property. A borrower never has to repay more than the home's value - it is a non-recourse loan.
Q. How much money can I get from my home?
A. The amount you can borrower depends on several factors including your age, the type of reverse mortgage you select, current interest rates and the value and location or your home. Generally, the more valuable your home is, the older you are and the lower the expected interest rate, the more you can borrow.
Q. How can I use the money?
A: The good news is you can do anything you want with the money; after all it's your money. You can travel, pay off debts, pay for health care or make home improvements. You can also put some money into a line of credit for emergencies.
Q: What are the requirements for a reverse mortgage?
A: A reverse mortgage requires the borrower to be 62 years of age or older, owns their home outright or has a low mortgage balance that can be paid off at closing with the proceeds from the reverse loan and must live in the home. There are no income or credit qualifications.
Q: How do I receive the money from a reverse mortgage?
A: There are payment options:
A lump sum all at once
Monthly payments for life
Monthly payments fixed for a period of time
Line of credit
A combination of any of the above
Q: I have an existing mortgage on my home, can I still get a reverse mortgage?
A: Yes, You may be eligible. The funds you receive would be used to pay off the existing mortgage.
Q: When must the loan be repaid and what is owed when the loan comes due?
A: The loan must be repaid when the last surviving borrower permanently moves out of the house or dies. The reverse mortgage principal, interest charges and service fees, (such as closing costs) are paid from the sale of the home or other assets of the estate. The loan may also be refinanced into a convential loan by either the borrower or the heirs thereby retaining the home.
Q: What kinds of reverse mortgages are available:
A: Here are the types of available reverse mortgages:
- HECM, OR Federally insured reverse mortgages. These are insured by the U.S. Department of Housing and Urban Development (HUD). They are widely available and have no income requirements.
- Home Keeper, a Fannie Mae’s conventional market alternative to the HECM. It is a government sponsored enterprise program and works like a HECM. Home Keeper reverse mortgage addresses a few needs that are not met by HECM loans, such as individuals with higher property values, condominium owners and new home purchases.
- Cash Advantage Plan, is a private loan with unique features. For a higher valued home with significant equity a senior may be likely to qualify for a larger cash payout through Cash Advantage.
Q: What will a reverse mortgage cost?
A: In most cases an application fee, which may cover the cost of a credit report and appraisal, origination fee, closing costs, insurance and a monthly servicing fee. These fees can be added to the principal and paid at the end when the loan becomes due.
Q: What is “TALC” and why should I know about it?
A: TALC stands for total Annual Loan Cost. It combines all of the costs of the loan into a single annual average rate and is very useful when comparing one type of reverse mortgage to another.
Q: Will a reverse mortgage affect my Social Security or Medicare or income taxes?
A: NO. The funds from a reverse mortgage do not affect Social Security or Medicare. Likewise the IRS considers them to be not taxable.
Q: I understand that I must meet with an independent third party counselor before completing my reverse mortgage application. What does that accomplish?
A: This is a federally mandated feature of the reverse mortgage process. The counselor, who is from an independent govenment approved agency, will explain the details and the pros and cons of all your reverse mortgage alternatives. They will discuss costs and financial implications. It is a good idea to include a family member, friend or trusted advisor.
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