Top 10 Reverse Mortgage Questions
It can be scary; making a major decision concerning your biggest investment, a decision
involving a place that means the most to you. Deciding whether or not a reverse
mortgage is right for you takes considerable thought and consideration. We hope
the following answers and questions help you in this endeavor.
1. What is a reverse mortgage and do I qualify?
A reverse mortgage is a unique loan that allow homeowner(s) 62 years of age and
older to draw on the equity in their home, which is paid to the homeowner(s) in
cash. The unique aspect of this loan is that it does not require repayment until
the homeowner(s) no longer reside in the residence. Created by The U.S. Department
of Housing and Urban Development (HUD), this federally insured private loan goes
to help those in the senior population meet their financial needs and ease money
worries for greater peace of mind.
After speaking with a reverse mortgage specialist and prior to applying for the
loan, it is required that you are made aware of the terms and conditions of the
loan through sources provided by HUD. Your reverse mortgage specialist will provide
you with a list of counselors or you can contact the Housing Counseling Clearinghouse
at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling
agency and a list of FHA approved lenders within your area.
2. Is my home eligible for a reverse mortgage?
Homes eligible for a reverse mortgage include single-family homes, detached homes,
townhouses, and two-to-four unit properties that are owner-occupied. Condominiums
must be FHA-approved
3. Why shouldn't I choose a bank home equity loan instead of a reverse mortgage?
Reverse mortgages are so popular because they provide cash that does not need to be
repaid as long as you remain in your home. On the other hand, attaining a home equity
loan (or a second mortgage) requires you have sufficient income to cover the debt—plus,
you must continue to make monthly mortgage payments. With a reverse mortgage, you
do not make monthly mortgage payments and the federally insured loan protects you
from foreclosure.
4. How much cash can I expect to get?
The cash you can potentially receive is based on your age, current interest rate,
and the appraised home value or FHA's mortgage limits for your area, whichever is
less. For instance, an older person with a higher value home will be eligible for
more than a younger person with a lower value home at the same interest rate.
5. What happens if I outlive the loan? Will I have to repay the lender?
No. If you or one of the borrowers lives in the home and continues to pay the taxes
and insurance, you will not need to repay the loan.
6. Must my house be paid off for me to qualify for a reverse mortgage?
No. You do not need to pay off your home to qualify, but the existing lien must
be paid from loan proceeds. It is not required that you meet an income or credit
criteria. Plus, you will continue to hold the title to your home.
7. Do I have to pay taxes on the cash payments I receive?
The cash you receive from a reverse mortgage is not subject to individual income
taxation. But, since you hold the title to your home, you are still responsible
for property taxes, insurance, utilities, fuel, maintenance, and other home-related
expenses. Interest on reverse mortgages is not deductible on income tax returns
until the loan is paid off in part or whole.
8. How will this loan affect my estate and how much will be left to my heirs?
Once the last surviving borrower dies, sells your home, or no longer resides there
as the primary residence, you or your estate is responsible for repayment of the
money you received from the reverse mortgage, plus interest and other fees. Any
remaining equity belongs to either you or your heirs. A “non-recourse” clause can
prevent either you or your estate from owing more than the value of your home when
the loan is repaid.
9. Should I use an estate planning service to find a reverse mortgage?
HUD advises against using an estate planning service, especially any service that
requests a lender referral fee, to procure a reverse mortgage.
10. How do I receive my payments?
Reverse mortgage payments can be received in one of six ways or a combination of these options,
check with our reverse mortgage specialist for the options that are available to you.
- Lump Sum Cash Payment: paid to borrower approximately 4 business days after closing;
- Tenure: equal monthly payments;
- Term: equal monthly payments for a fixed period of months as decided by the borrower(s);
- Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s);
- Modified Tenure: monthly payments with a line of credit;
- Modified Term: monthly payments for a fixed period of months with a line of credit.