Reverse Mortgage FAQ
What is a Reverse Mortgage?
How do you qualify?
How can you use the money?
Can you lose your home?
How is the Reverse Mortgage paid back?
What we want to leave the home to our kids?
How much cash can we receive?
What do the experts say about this program?
Are there any costs?
Will we have to pay any income taxes?
Will this loan affect my Social Security or Medicare benefits?
Q. What is a Reverse Mortgage?
A. Reverse Mortgage is a special type of loan that allows you to convert a portion
of the equity in your home to eliminate mortgage payments and even gain tax-free
income without losing the title to the home. As opposed to a forward mortgage where you make monthly payments, the reverse mortgage has no monthly payment. Your accumulated equity derived from
mortgage payments and appreciation can be paid back to you with a reverse mortgage. But unlike a traditional home equity loan or second mortgage, no repayment is required until you no longer
use the home as your principal residence. Most Reverse Mortgages are FHA-insured
and guaranteed. A small percentage of available Reverse Mortgages offer built in
private insurance.
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Q. How do you qualify?
A. You must be 62 or older and own a home that has no mortgage, or if it has a mortgage then the loan balance should not exceed 50% of the present market value. You don't need any income
to qualify. If you currently have a mortgage, that's okay -- it will be paid off with
the reverse mortgage. Your credit scores are not a factor and you can even have some credit issues, as long as there are no current government liens against your home.
Additionally your must occupy the property as your primary residence and not be delinquent on any federal debt. You have to be able to demonstrate that you have the ability to make ongoing property charges for property taxes, homeowners insurance and HOA fees, if any. You will be required to participate in a consumer informatioin session given by a HUD-approved HECM counselor.
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Q. How can you use the money?
A. The money from a Reverse Mortgage can be used for any purpose, from making ends
meet to living your retirement dreams. The top reasons for funds used given typically
by borrowers are:
Paying off debts like mortgages and credit cards
Home repairs and remodeling
Living expenses
Travel
Health care or long-term care
Easing the financial burden on their children
Education
Hobbies
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Q. Can you lose your home?
A. Absolutely not! As long as you remain the homeowner you can stay in the home
for as long you desire. In effect, you are being paid to live at home. The program
is regulated and insured by the Federal Housing Administration. By law, you can't
be forced to sell or move and no payments are due on the reverse mortgage until
you no longer live in the home.
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Q. How is the Reverse Mortgage paid back?
A. This isn't a home equity loan. The loan is paid back when you move out of your
home, sell your home, or if all the people on title have passed away.
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Q. What if we want to leave the home to our kids?
A. You can still leave your home to your children or to anyone you choose. Your heirs can
pay off the loan in any number of ways, including:
Selling the house
Refinancing the debt or
Using other funds to pay off the Reverse Mortgage
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Q. How much cash can we receive?
A. The amount depends on your age and the value of the home. We will provide you with actual numbers for your initial payment, future payment and/or line of credit.
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Q. What do the experts say about this program?
A. Many financial counselors, senior advocates and published reports suggest that
a Reverse Mortgage can be a smart way to secure a financial future during retirement.
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Q. Are there any costs?
A. As with any loan, there are closing and other costs, all of which can be paid
with the money generated by the Reverse Mortgage, however there are no out-of-pocket
costs to the homeowner. The most expensive cost of a home equity conversion mortgage (HECM) is the up front mortgage insurance premium. All government insured loans have this cost. It is required so that at the time the loan is due, if the value of your home is less than the loan balance, the insurance fund will cover the loss and you will not be respondible for the difference.
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Q. Will we have to pay any income taxes?
A. In general, the IRS does not consider proceeds from a Reverse Mortgage to be
taxable income. You are still responsible for property taxes, homeowner's insurance
and for all home upkeep and maintenance. You will be recommended to consult with
a tax professional.
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Q. Will this loan affect my Social Security or Medicare benefits?
A. HECM payments do not affect Social Security or Medicare benefits because those
benefits are not based on the value of your assets. However, in the federal Supplemental
Security Income program, beneficiaries must keep their liquid resources under certain
limits.
If you don't spend HECM advances in the month received, then such funds are considered
part of your liquid resources and may adversely affect your eligibility for SSI.
Regulations vary for state-administered programs such as Medicaid, Aid for Dependent
Children (AFDC) and food stamps. Therefore, we suggest that you consult with a benefits
specialist at your local Area Agency on Aging or the local offices for these programs
to determine how HECM payments may affect your particular situation.
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