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1. What is a Reverse Mortgage?
A: A Reverse Mortgage is designed to benefit homeowners age 62 or older who are looking for a way to tap their home equity without having to pay back the loan while they still live in their home. With a Reverse Mortgage, you borrow against the value of your home, and receive loan proceeds according to the payment plan that you select. It can provide the maximum amount of flexibility to address your particular financial needs - whether it is a lump sum to pay an unexpected hospital bill, or a stream of regular payments to supplement your monthly income. Unlike traditional home equity loans, no repayment of the loan is required until you no longer occupy the home as your principal residence. If you sell your home or move, proceeds from the sale of your home are first used to repay the lender then any remaining equity is yours. When you pass on any remaining equity in the home passes to your estate or heirs.
2. Who is
eligible for a Reverse Mortgage?
A: You, and any co-borrowers, must be at least 62 years old and either own
your home free and clear or have a low outstanding mortgage balance. The home
must be your principal residence and also be a single-family, one unit
dwelling or a condominium, townhouse, duplex, triplex, 4-plex, manufactured or
mobile home. You also must agree to accept mortgage counseling from a
nonprofit or public agency engaged in reverse mortgage counseling and if a
HECM loan, the counseling agency or counselor must be FHA approved. Family
members are strongly encouraged to attend these counseling sessions.
3. Will Reverse Mortgage payments affect my Social Security, Medicare, Supplemental Security Income (SSI), or Medicaid benefits?
A: Reverse Mortgage payments do not affect your Social Security or Medicare benefits because they are not based on the assets of the recipient. However, in the federal SSI program, beneficiaries must keep their liquid resources under certain limits. With Reverse Mortgages, you can choose to suspend your monthly payments for a specified period. You may wish to exercise this option if you receive SSI or Medicaid payments, do not have an immediate need for the loan funds, and are concerned about failing the SSI asset test.
Regulations vary for state-administered programs such as Medicaid, Aid for Dependent Children (AFDC), and food stamps. Therefore, 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 Reverse Mortgage payments may affect your particular financial situation.
4. Will I have to pay any fees to obtain a Reverse Mortgage?
A: Yes, you will have to pay a low one-time origination fee and other closing costs. In addition, your lender will assess a servicing fee each month to administer your loan. You may be able to finance the origination fee and other closing costs - that is, these items may be included in your loan balance so that you do not have to pay for them in cash when you close your loan.
5. Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
A: No. As long as you continue to occupy the property as your principal residence, maintain the property, and pay your property taxes and insurance, you can stay in your home for as long as you choose. No deficiency judgment may result from your Reverse Mortgage loan.
6. Will my
heirs owe anything to the mortgage lender if I die?
A: Upon your death, the loan balance, consisting of payments made to you or on
your behalf plus accrued interest, becomes due and payable. Your heirs may
repay the loan balance by selling the home or by paying off the Reverse
Mortgage loan so that they may keep the home. If the loan balance exceeds the
value of the property when home is sold all proceeds will go to the
lender. There is no "negative balance" which may be charged to your heirs or
estate. No additional financial claims may be made against your heirs or the
estate.
7. If my home appreciates in value during the mortgage term, who will be entitled to that money?
A: By law, the lender is only entitled to the outstanding balance on the reverse mortgage. Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs.
8. What if I decide to sell my home?
A: If you choose to sell your home, it works like a normal sale...you choose the realtor, etc. The outstanding loan balance becomes due and payable to the mortgage lender. You can pay the loan balance with proceeds from the sale of your home, and you or your estate will receive any proceeds exceeding the loan balance.
9. How much money can I borrow?
A: The maximum amount you can borrow (the principal limit) is based on three factors: the expected interest rate, the age of the youngest borrower, and the adjusted property value. The adjusted property value is the lesser of the appraised value of your home or the particular loan program's limit. Your principal limit is determined at the time you apply for your loan and you will be aware of that figure.
10. What payment plans are available?
A: In most states, a borrower may choose among up to five payment options depending on the loan program chosen. You may change payment plans at any time, and as often as you like, for a small fee.
Tenure: You receive a monthly check for as long as you live in the home.
Line of Credit: You can draw up to a maximum amount at the times and in the amounts of the your choosing. The unused balance on your line of credit may continue to grow in value to you depending on the type of reverse mortgage you choose.
Lump Sum Cash Advance: A lump sum of cash distributed to you at closing.
Term: You receive a defined amount each month for a specified term. This is useful if the you want or need more cash each month and/or do not expect to remain in your home for the rest of your life. When the defined term is up, the payments will stop however the loan is still not due until the you cease to occupy the home as your primary residence.
Modified: You may opt to receive funds in a combination of the above options.
No matter which payment plan you select, with your Reverse Mortgage you will have the security of knowing that repayment is not required until you no longer live in your home-as long as you abide by your agreement with your lender to pay your taxes and insurance and to maintain your property.
11. How is my monthly payment amount determined?
A: If you elect the tenure or modified tenure option, the amount of money paid to you is determined by considering the following factors: your principal limit (the amount of cash available to you as a borrower) and the length of time you are expected to remain in your home, based on life expectancy. The older you are, the larger your payments are likely to be.
12. Can I sell my home to my children and continue to live in it?
A: If you sell your home to your children or any other individual, the Reverse Mortgage will become due and payable at settlement. After the loan is repaid, any arrangement for your continued occupancy of the property must be made with the new owners.
13. What are some of my responsibilities as a homeowner with a reverse mortgage?
A: To keep your real estate taxes and homeowners insurance current, and to properly maintain your home so that it's value does not diminish.
14. Can I purchase a new home using a
Reverse Mortgage?
A. Some Reverse Mortgage loan programs can be used by persons 62 years of age or older to purchase a new or existing home ultimately eliminating monthly mortgage payments. One exception to home purchase is the HECM reverse mortgage. The loan combines features of a home purchase mortgage and a reverse mortgage into one easy step, giving you instant access to your home equity. In most instances, this loan is used by homeowners who want to sell their current home and buy another one that suits their needs. The lender will use the purchase price of the new home, age of the youngest borrower, the expected interest rate and the current lender's loan limit to determine your eligible principal limit. Depending on the purchase price of the home, you may be required to apply part of your own funds toward the purchase and cost of closing.
15. Am I spending my children's inheritance?
A. No. Your heirs are entitled to any appreciation the property accrues after repayment of the loan. Additionally, a reverse mortgage offers the freedom to assist your children financially today and avoid the potential of burdening them with your expenses.
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