Question: What is a Reverse Mortgage?
Answer: A Reverse Mortgage is a home loan that enables
you, as an older homeowner, to tap part of the equity in your
home while giving you flexibility to address your particular
financial needs -- whether it is a lump sum to payoff an existing
mortgage or a stream of regular monthly payments to supplement
your monthly income. Unlike traditional home loans, no repayment
of the Reverse Mortgage loan is required until you no longer
occupy the home as your principal residence.
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Question: How does a Reverse Mortgage differ from a regular
home loan?
Answer: While both Reverse Mortgage's and regular home
loans have the capability to turn the equity in your home into
spend-able dollars, there are important differences.
With a regular home loan, you must qualify with credit and income
requirements, and then be obligated to make regular monthly
payments to repay the loan. If you fail to make the monthly
payments, the mortgage lender can foreclose on you.
With a Reverse Mortgage, you do not repay the loan for as long
as the home remains your principal residence, and your income
and credit is not considered when qualifying you for the Reverse
Mortgage loan. However you will be required to pay the annual
taxes and insurance and keep up on the maintenance of the home.
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Question: Who is eligible for a Reverse Mortgage?
Answer: All Homeowners must be at least 62 years of age.
A Reverse Mortgage counseling session with a HUD-approved counseling
agency is required; family members are encouraged to attend
these counseling sessions. A certificate will be issued upon
completion of the counseling.
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Question: Must I pay off any loans or liens that are against
the property?
Answer: All loans or liens must be paid off to get the
Reverse Mortgage loan. They can be paid off at loan origination
with Reverse Mortgage dollars.
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Question: What are the minimum and maximum amounts that
I can borrow?
Answer: The maximum amount you can borrow is based on
a HUD formula that factors in the age of the youngest borrower,
the expected interest rate, and the 'plan-adjusted value' for
the local county. The plan adjusted value, or 'maximum claim
amount' is the lesser of the appraised value of your home or
the plan adjusted value for a one-family residence that can
be insured by FHA in your area. There is no minimum borrowing
amount. There is no upward limit on the value of the property.
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Question: What types of payment plans are available with
the HECM loan?
Answer: Lump Sum, Term, Tenure, Modified Term, Modified
Tenure, Line of Credit
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Question: How will the amount of the monthly payment be
calculated?
Answer: How much you can receive in monthly payments
depends on the age of the youngest borrower, the expected interest
rate, the plan adjusted value defined above, and the length
of time that you will be receiving payments - - for a fixed
period or for as long as you live in your home. The older you
are, the more benefit you qualify for, the larger your payments
are likely to be.
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Question: Will I have to pay fees to obtain a Reverse Mortgage?
Answer: Yes, you will have to pay an origination fee,
other normal closing costs, and a mortgage insurance premium
- - which is divided into two parts: an upfront premium of 2%
of the plan adjusted value and 1/2% per year on your mortgage
balance, -- and a servicing fee. You can finance all closing
costs except for the appraisal fee, these are typically rolled
into your loan balance so that you do not have to pay for them
in cash. You will need to pay for the appraisal. This is your
only out of pocket expense for this loan. The cost can range
from $300 to $450 depending on your area. Both the monthly servicing
fee and the yearly insurance premium will be charged to your
loan balance as the charges occur.
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Question: Can I be forced to sell or vacate my home if the
money I owe on the loan balance exceeds the value of my home?
Answer: Absolutely not, as long as you continue to occupy
the property as your principal residence. You cannot be forced
to sell or vacate the property, even if the total of the mortgage
payments to you plus interest and mortgage insurance premiums
exceeds the value of the property or if the fixed term over
which you received your payments has expired. No deficiency
judgment may result from your HECM loan. FHA insurance covers
any further financial obligation to the lender.
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Question: Will my heirs owe anything to the mortgage lender
if I die?
Answer: 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 by selling
the home or by paying off the HECM loan so that they may keep
the home. If the loan exceeds the value of your property, your
heirs will owe no more than the value of the property. FHA insurance
will cover any balance due the lender. No additional financial
claims may be made against your heirs or estate.
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Question: If my home appreciates in value during the mortgage
term, who will be entitled to that money?
Answer: Under a HECM you are legally required to pay
back to the lender only the outstanding balance. Any money remaining
after the mortgage is paid goes to you or, upon your death,
to your heirs.
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Question: What if I decide to sell my home?
Answer: If you choose to sell your home, the outstanding
loan balance becomes due and payable to the mortgage lender.
You, or your estate, will receive any proceeds exceeding the
loan balance.
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Question: Can I sell my home to my children and continue
to live in it?
Answer: If you sell your home to your children or any
other individual, the HECM will be 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.
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Question: Is this a fixed rate loan?
Answer: There are no fixed rate HECM loans. The adjustable-rate
mortgage (ARM) plan features monthly rate adjustments with a
2% cap on the amount that the interest rate may change at each
adjustment and a 10% cap on increases or decreases over the
life of the loan.
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Question: Will HECM payments affect my Social Security,
Medicare, Supplemental Security Income, or Medicaid benefits?
Answer: HECM advances can be added to your liquid assets
under some programs, if not spent in the month received, it
may affect your eligibility for some programs. We suggest you
consult the local offices for these programs or any other to
determine how HECM payments may affect your particular situation.
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Question: Who is eligible for a HECM?
Answer: You, and any co-borrowers, must be 62 years old
and either own your home free and clear or have a very low outstanding
mortgage balance. You also must attend a consumer education
session on reverse mortgages. Family members are encouraged
to attend these sessions.
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Question: What are the eligibility requirements for a reverse
mortgage?
Answer: You and all co-borrowers must be a minimum of
62 years old. The home should have a low mortgage balance or
be owned free and clear. The home must be owner-occupied. FHA-approved
condominiums and two- to four-unit dwellings (owner occupied)
are also eligible.
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Question: Who are reverse mortgages designed for?
Answer: They are designed for homeowners at least 62
years of age with significant equity in their homes.
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Question: Can a reverse mortgage be taken out if there is
already a conventional mortgage on the home?
Answer: Yes, but and existing mortgages must be paid
off at closing. The proceeds from the reverse mortgage may be
used for that purpose.
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Question: What types of homes won't qualify for a reverse
mortgage?
Answer: Generally vacation homes or other secondary residences,
mobile or manufactured homes not attached to a permanent foundation,
rental properties of more than four units and homes on leased
lands do not qualify.
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Question: What about a home in a "living trust"?
Answer: A homeowner who has put the home in a living
trust can usually take out a reverse mortgage, subject to review
of the trust documents.
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Question: Will I have any tax liability for the reverse
mortgage proceeds?
Answer: Currently the Internal Revenue Service treats
monies received from a reverse mortgage to be loan advances
and not taxable income. For your specific situation, we recommend
that you consult your tax advisor.
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Question: Can the interest charged on my loan principal
be deducted for tax purposes?
Answer: The interest accrues and is deductible when the
loan balance and interest is repaid, when the borrower permanently
leaves the property. For your specific situation, we recommend
that you consult your tax advisor.
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Question: How do the monies from a reverse mortgage affect
Social Security, Medicare or pension benefits?
Answer: The proceeds from a reverse mortgage do not affect
these benefits. For your specific situation, we recommend that
you consult your financial advisor.
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Question: If I take out a reverse mortgage will my SSI or
Medicaid benefits be affected?
Answer: No, A reverse mortgage will not affect these
or most other means tested benefits as long as the monthly cash
advances are fully spent every month and not accumulated. Programs
do vary by state so it's advisable to check with the local Area
Agency on Aging. We also recommend that you consult your financial
advisor.
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Question: What are the upfront costs associated with a reverse
mortgage?
Answer: The borrower will pay an origination fee and
actual closing costs, including charges by the title and escrow
companies. All of these costs can be financed as part of the
initial loan advance.
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Question: What is due when the loan is repaid?
Answer: The borrower pays back the cash advances they
have received plus accumulated interest.
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Question: What if I owe more than my home is worth?
Answer: All reverse mortgages are "non-recourse" loans,
which mean that the borrower can never owe more than the value
of the home regardless of loan balance.
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Question: Does the lender take the house?
Answer: This is a misconception; a reverse mortgage is
merely a loan against the property. The title remains in the
name of the borrower and the lender is only repaid the loan
balance or the home value which ever is less.
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Question: If there are no payments, what are my responsibilities
as a borrower with a reverse mortgage?
Answer: Your are required to pay your property taxes,
keep current property insurance in place, maintain the home,
and notify the lender if you will be away from the property
for an extended period.
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Question: When does the loan become due and payable?
Answer: The loan is due and payable when the borrower
sells the property, permanently leaves the home, or passes away.
In the case of a couple, it is the second to move out or die
that triggers repayment. Until these events take place you live
in the home and make no payments to the lender.
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Question: Do I or my heirs have to sell the property to
repay the loan?
Answer: No, repayment can be accomplished by a refinancing
of the existing reverse mortgage by a conventional mortgage
loan.
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If you have any more questions please contact
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