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REVERSE MORTGAGE QUESTIONS
& CONCERNS
What is a Reverse Mortgage?
A Reverse Mortgage is a unique loan program that
can convert equity in your home into tax-free cash
and eliminate your mortgage payment as long as
you continue to live in your home.
What can I use the cash from
a Reverse Mortgage for?
Payoff Existing Mortgage
Continue to live independently in your own home
Healthcare / Home Health Assistant Costs
Reduce Burden on Your Children
Home Repair or Improvements
Property Taxes
Increase Savings
Increase Monthly Cash Flow
Travel
Gifts / Contributions
ANYTHING!
Who should NOT get a Reverse Mortgage?
Anyone planning on living in their home less than 2 years
should not get a Reverses Mortgage.
Are there consumer safeguards on Reverse
Mortgages?
Yes. The consumer safeguards on Reverse Mortgages include:
• Limits on interest rates and closing costs
• No recourse - you or your estate can never owe more
than the home is worth
• Advanced disclosure so that you are made fully aware
of all terms and costs
• Independent Counseling from an FHA approved counseling
service is required
Does my home need to be “free & clear”
to do a Reverse Mortgage?
No. You may pay off an existing mortgage or equity loan with
a Reverse Mortgage. In fact many people get a Reverse Mortgage
to pay off an existing loan in order to eliminate their mortgage
payment and get additional cash for repairs and maintenance,
or just to increase their savings balances.
What are the monthly payments on
a Reverse Mortgage?
There are NO payments on a Reverse Mortgage. However you still
must pay the property taxes, insurance, and general maintenance
on your home.
How much can I borrow on a Reverse Mortgage?
There are only four factors that are used to determine how much
you can borrow on a Reverse Mortgage:
1) The age of the youngest borrower
2) The value of your home as determined by an independent
appraisal.
3) Current interest rates
4) The type of Reverse Mortgage and the payment
option you choose.
The youngest borrower must be over 62 years old and your must have
equity in your home over and above the current mortgage balance.
The are no income or credit requirements other than enough income
to be able to pay the taxes, insurance, and general maintenance
on your home.
Your Reverse Mortgage professional can prepare a printed analysis
showing exactly how much loan you can qualify for and what your net
proceeds will be.
Will the bank own my home if I take out
a Reverse Mortgage?
No. This is just like any other mortgage in that you retain title,
and all rights to the property. But unlike any other mortgage,
you have NO mortgage payments on a Reverse Mortgage.
You are still responsible for the taxes, insurance, and general
maintenance on your home.
Will my children owe the lender when I’m gone?
No. Reverse Mortgages are “non-recourse” loans which means that
the property is the only security for the loan. The lender cannot
seek payment from you or your heirs if the sale price is insufficient
to completely repay the loan. In that case, the FHA will repay
the lender from the mortgage insurance fund. You and your heirs
will never owe more than the value of the home.
If I take a Reverse Mortgage will it effect my
Social Security or Medicare eligibility?
No. A reverse mortgage is not income. It simply converts something
you already own… the equity in your home… into cash. As of the time
of this writing (September 2010) a reverse mortgage has no impact
on the amount of Social Security or Medicare you will receive.
Some other programs like MediCal and Medicaid are “means tested”,
so be sure to check with competent advisors if you are currently, or
expect to be, using those programs. This is one of the reasons the
Department of Housing & Urban Development requires everyone who
gets a reverse mortgage to go through a counseling session with an
independent 3rd party counselor.
Do I need to have a good credit history?
No. Credit is not a consideration in the qualification for a reverse
mortgage. The only factors that are considered for a reverse mortgage
are your age (must be at least 62) and the value of your home. You
can even get a reverse mortgage if you are in default on your current
mortgage and/or have declared bankruptcy recently.
How much income do I need to have in order
to qualify for a reverse mortgage?
Very little. There is no income requirement for the reverse mortgage.
You do need to show that you have enough income to pay the taxes,
insurance, and basic maintenance on your home.
Do Reverse Mortgages have very high fees?
High fees and closing costs used to hold some people back from taking
out a reverse mortgage. In 2010, the FHA and the Reverse Mortgage
lenders introduced new programs that can dramatically reduce, or even
eliminate most of the fees and closing costs. Costs are now similar to
those on traditional mortgages.
Could I end up owing more than the value
of my home?
Since there are no payments on a Reverse Mortgage, the interest due
each month is added to the principal balance of the loan. Theoretically,
then, the balance of the Reverse Mortgage could become more than
the value of the home, but you and your heirs will NEVER owe more
than the value of your home because a Reverse Mortgage loan is
a “non-recourse” loan. This means that the only security for the loan
is the value of the property. If the balance is greater than the net
proceeds when the home is sold, the FHA will make up the difference
to the lender out of the Mortgage Insurance fund.
You will never owe more than the value of the home.
What happens if I move out of my home
when I have a Reverse Mortgage?
A Reverse Mortgage needs to be paid off once a qualifying senior
is no longer living in the home on a permanent basis. This can be
done by refinancing with a conventional mortgage or selling the home.
If the homeowner passes away, the heirs have 12 months to payoff the
loan by sale of the property, or by refinancing the loan.
What if my Reverse Mortgage bank fails?
A few years ago one would never have seriously considered that their
bank or mortgage company might go under...now that has changed.
The FHA mortgage insurance policy protects BOTH the lender and the
homeowner. Also, a lot of seniors are taking the fixed rate HECM
because in addition to the low fixed rate, it has much lower fees, and
all the money is paid out to the homeowner up front.
FREQUENTLY ASKED QUESTIONS ABOUT REVERSE MORTGAGES
