1. What is a reverse mortgage?
A reverse mortgage is a home equity loan for seniors age 62 and over that allows them to convert the accumulated equity in their home into cash without giving up title or incurring monthly payments of principal or interest.
2. How do I qualify for a reverse mortgage?
You (and your spouse) must be at least 62 years of age, own your home, have sufficient equity in it to borrow against and live in it as your primary residence. An analysis of your ability to pay taxes, insurance and maintenance costs after receiving the proceeds of the reverse mortgage will be required. The borrower is also ineligible for a reverse mortgage if a lien used to convert home equity to cash has been originated on the property in the last 12 months.
3. How will the proceeds from the reverse mortgage affect my taxes, Social Security or other benefits?
Regular Social Security and Medicare benefits are not impacted by the proceeds from a reverse mortgage. Some programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. If you participate in one of these programs, please consult the appropriate government agency to determine how a reverse mortgage could impact your benefits.
4. How much equity can I access?
The amount of equity you can access depends primarily on three factors: the age of the youngest homeowner, the appraised value of the home as determined by the lender, and current interest rates at the time of the loan closing. The older you are, the larger the percentage of your home's equity that can be accessed.
5. What if I already have a mortgage or other debt on my home?
The mortgage or any other lien against the property will be paid off from the proceeds of the reverse mortgage loan at the closing. Your net loan will then be based on the remaining equity in your home.
6. What are the options for receiving reverse mortgage payments?
Depending on the reverse mortgage product selected, you can receive a lump sum at closing, a line of credit to draw on if and when you choose, or monthly payments for as long as the home is your primary residence or for a fixed number of years. You can also elect to receive payment using a combination of the above methods. For example, you can choose a combination of an up-front lump sum for immediate needs and a line of credit that can be drawn upon at a later date if additional needs arise. The amount of funds you may receive as a draw on a credit line or in a lump sum is limited in the first year of the reverse mortgage.
7. Will I still own my home after I get a reverse mortgage?
You will continue to own and hold title to your home.
8. Will a formal appraisal be conducted as part of the reverse mortgage approval process?
A formal appraisal is performed to determine the home's value, a key factor in determining the amount of the loan. Paying for the appraisal is the responsibility of the borrower.
9. Will I need an attorney to represent me at the reverse mortgage closing?
Although most programs do not require it, you may choose to have your own attorney at the closing. In addition, it is prudent to seek advice from a trusted family member or advisor.
10. Will counseling be required before I can get a reverse mortgage?
You must attend a counseling session given by a government-approved agency. There may be a fee for this required counseling service.
11. Are there any restrictions on what the reverse mortgage proceeds can be used for?
Depending on the reverse mortgage product selected, there may be some restrictions. Generally, you can use the proceeds for a wide range of needs, including paying for everyday necessities, purchasing or paying for health insurance or health care, buying life insurance and making repairs to your home.
12. Are there any monthly mortgage payments?
No monthly payments are required on the loan. Principal and interest do not need to be repaid as long as the property remains the borrower's primary residence,1 taxes and insurance are paid and the property is maintained.
13. Can one owner remain in the house if the other moves out or passes away?
As long as the property remains the owner’s primary residence, either owner may remain in the home if the other moves out or passes away. Only when the last owner vacates the home does the loan become due.1
14. Will a temporary non-occupancy cause the reverse mortgage to become due?
Non-occupancy of your principal residence by all owners for a period of time defined by your reverse mortgage program, generally more than one year, will cause the reverse mortgage to become due.1
15. When must the loan be paid off?
When the home is no longer the primary residence of the owner(s).1
16. Do my heirs have to sell the house to repay the reverse mortgage?
Your heirs do not have to sell the house to repay the reverse mortgage if they can repay the balance due from other resources. If they choose to sell the home, they keep the excess equity, if any, after repaying the loan.
17. How much will be owed at the end of the reverse mortgage?
The total of loan advances, accrued interest, accrued mortgage insurance premiums, and any costs and fees financed as part of the reverse mortgage will become due at the conclusion of the reverse mortgage. There are no prepayment penalties.
18. Can a living trust or other form of trust take out a reverse mortgage?
Generally, a trust can take out a reverse mortgage as long as the trust is revocable, with the borrowers as the beneficiaries. The entire trust document must be reviewed by the lender in order to approve the reverse mortgage in a manner that maintains the integrity of the trust and a clear title for the lender.
19. Will any other part of the homeowner’s estate be responsible for reverse mortgage debt?
What must be paid at the conclusion of the reverse mortgage is the sum of the actual funds received plus those advanced for fees and the accrued interest. If the property is sold to pay off the reverse mortgage balance, the estate's liability is limited to the proceeds from the sale of home. However, if your heirs decide to keep the home, then the payoff amount would equal the total balance on the account.
20. Can the proceeds be used as a retirement or estate planning tool?
The proceeds of a reverse mortgage can be used as a funding mechanism for an entire financial retirement solution.
21. What are the costs involved with getting a reverse mortgage?
All mortgages have costs paid by the borrower, whether they are expressed as points paid up front or are built into the interest rate and paid on a monthly basis. Reverse mortgages are no exception and many of the same costs of a conventional mortgage apply to a reverse mortgage as well. Almost all of the costs of a reverse mortgage can be financed or incorporated into the loan, which greatly reduces out-of-pocket costs. The charges may include an appraisal fee, origination fees, mortgage insurance fee, and other standard recording or closing costs.