| Reverse Mortgage Factsheet | |
What is a Reverse Mortgage? A reverse mortgage is a type of home loan that lets a homeowner convert part of the equity in his or her home into tax-free cash without having to sell the home, give up title or take on a new monthly mortgage payment. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. The reverse mortgage is named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. What is a Home Equity Conversion Mortgage (HECM)? The HECM is a FHA insured reverse mortgage that can be used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. Homeowners who meet the eligibility criteria can complete a reverse mortgage application by contacting a FHA-approved lending institution such as a bank, mortgage company, or savings and loan association. What are the Qualifications for a HECM Reverse Mortgage? To be eligible for a reverse mortgage, it is required that the borrower is a homeowner that is 62 years of age or older. The borrower must either own the home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan. The borrower must occupy the home as his/her primary residence. What are the Financial Requirements to get a HECM Reverse Mortgage? There are no income, asset or credit qualifications required of the borrower and no repayment as long as the property is the primary residence of the borrower. Closing costs may be financed in the mortgage. What Types of Homes are Eligible? Your home must be a single family dwelling or a one-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and manufactured homes (built after June 1976) are eligible as well. The home must meet FHA property standards and flood requirements. In general, cooperative housing is ineligible. How much Money can I get from a Reverse Mortgage? The amount you can borrow depends on your age (or the age of the youngest spouse in the case of couples), the current interest rate, and the appraised value of your home or FHA's mortgage limit, whichever is less. How do I Receive my Payments? You have five payment plan options to choose from which can be change if/you’re your circumstances change for a nominal fee.
How can I use the Money from a Reverse Mortgage? Are there any limits on how I use the Money? The proceeds from a reverse mortgage can be used for anything you choose, whether it’s to supplement income to cover daily living expenses, repair or modify your home, pay for health care, pay off existing debts, buy a new car, take a "dream" vacation, cover property taxes, and prevent foreclosure. For many people, the money provides a "financial security blanket," in case unexpected expenses arise. When do I Pay my Loan Back? No monthly payments are due on a reverse mortgage while it is outstanding. The flow of payments is reversed during the term of the reverse mortgage – the lender pays you. However, you are responsible for keeping up payments on your homeowner’s insurance and property taxes, and to maintain your home in good repair. The loan is repaid when you cease to occupy your home as a principal residence for 12 consecutive months, or when you (or the last remaining spouse, in cases of couples) pass away, or when you sell the home, or when you permanently move out. You may also be required to repay the loan if you fail to pay property taxes or maintain hazard insurance or you do not maintain the home in reasonable condition. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate. You can never owe more than your home's value. If I get a Reverse Mortgage, will I still have an Estate that I can Leave to my Heirs? When you sell your home or no longer use it as your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest, monthly service fees and any other accrued costs. Any remaining equity belongs to you or your heirs. None of your other assets will be affected by your reverse mortgage loan. If your heirs sell the house to pay off the reverse mortgage they will inherit everything over and above the payoff of the loan. Back to Top What happens if I cannot sell the House for Enough to Repay the Lender? The reverse mortgage is a non-recourse loan. This means that you will never have to repay more than the current market value of your home at the time of the sale. While the loan balance can exceed the property value, neither you nor your estate will ever be obligated for more than the appraised property value. Will I Lose Title to my Home? No. The lender does not have the authority to take you off title. The loan simply creates a lien against your home that is paid off when you decide to no longer occupy the home or upon your death. Who Pays the Taxes and Insurance? The title to the home is still in your name; therefore you are responsible for maintaining insurance and paying the property taxes. Will I Lose My Government Assistance If I Get a Reverse Mortgage? A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. Under What Circumstances Should I Not Consider a Reverse Mortgage? Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you're having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options, because in many cases, the home is sold to pay back a reverse mortgage. |