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Understanding Reverse Mortgages
What are the eligibility requirements for a Reverse Mortgage?
To quality for a Reverse Mortgage, you must:
- Be at least 62 years old. If you’re married, both you and your spouse must be 62 if your names appear on the title of your home.
- Be a homeowner with equity in your home. You may qualify even if you have an outstanding balance on your first mortgage.
- Your home must be a one- to four-family home, qualified condominium, townhouse, or manufactured home.
What are the types of Reverse Mortgages?
There are two types, including:
- Home Equity Conversion Mortgage (HECM) — FHA-insured program (monthly & annual adjustable)
- Proprietary reverse mortgages
One of the benefits of working with Your Home For Life is that we can customize the program that works best for your unique situation.
How much money can I get?
The amount you can borrow depends on a few factors, including:
- Your age at the time of the closing.
- The value of your home.
- The amount of built-up equity.
- The interest rates at the time you apply.
- The product and payment option you select.
To get an estimate of how much you can receive, try our calculator.
What if I have an existing mortgage on my home?
You can still qualify for a reverse mortgage. The proceeds of the reverse mortgage, though, must first be used to pay off that debt.
How can I receive funds?
You have the flexibility to choose the way you receive funds. You can choose from –
- An up-front lump sum payment.
- Line of credit that you can draw on when you need.
- Fixed monthly payments for as long as you remain in your home or a pre-determined, shorter period, if you choose.
- A combination of monthly income and a line of credit.
How much does a reverse mortgage cost?
Many of the same costs of home purchase mortgages apply to reverse mortgages, including origination fees, up-front mortgage insurance fees, and appraisal fees, and certain other closing costs. In most cases, these fees and costs are capped and typically financed as part of the reverse mortgage. Note also that all reverse mortgage fees and closing costs are deferred until you or your surviving spouse move out of the home permanently.
Is an appraisal required for a reverse mortgage?
Yes. Since the value of your home is a factor in determining how much money you can get from a Reverse Mortgage, an appraisal is required. Normally, we will order the appraisal, which is paid for by the borrower at the time of application.
Do I need a lawyer to apply for a reverse mortgage?
Legal counsel is not required, however, we encourage you to seek advice of a legal, tax, or financial advisor before deciding to apply for a reverse mortgage.
Am I required to receive counseling before I get a reverse mortgage?
Yes. Counseling, which is one of the safeguards of reverse mortgages, is required before you can obtain a loan. During your counseling session, you will learn about reverse mortgages and other options.
You can get the name of a local counseling agency or qualified telephone counselor by calling:
| Your Home For Lifesm*: |
1-800-690-6646 |
| AARP |
1-800-424-3410 |
| Fannie Mae’s Homepath Service |
1-800-732-6643 |
| HUD’s Housing Counseling Clearinghouse |
1-888-466-3487 |
Is the money from a reverse mortgage taxable income?
Funds from reverse mortgages are tax-free. It is after all, your money and not additional income.
Does my reverse mortgage affect my Social Security benefits or other government benefits?
A reverse mortgage does not affect regular Social Security or Medicare benefits. To asses the impact, if any, on other federal or state assistance or medical programs, you may wish to consult with your local Area Agency on Aging (to locate one nearest you, call 1-800-677-1116, or visit http://eldercare.gov), or a tax attorney.
Who owns title to my home while my reserve mortgage is outstanding – the bank or me?
You retain title to your home during the period when you have a reverse mortgage, just the same as you would with a regular home purchase mortgage.
Am I required to pay anything during the course of a reverse mortgage loan?
No. The flow of payment is reversed during the term of the reverse mortgage – the lending institution pays you. However, you are responsible for keeping up payments for your homeowner’s insurance and property taxes, and to maintain the condition of your home.
Are there any limits on how I can use the funds from a Reverse Mortgage?
No. You can use funds from your Reverse Mortgage for any reason, including:
- Healthcare expenses
- Supplemental retirement income
- Home improvements and modifications
- Higher education
- Gifts to others
- Long-term care insurance premiums
- Start a small business
- Travel
- Eliminate expenses
What is the interest rate on a reverse mortgage and how is it determined?
The interest rate varies by the type of reverse mortgage.
For the HECM:
| The interest rate is adjusted either monthly or annually (your choice) based on an index called the “1-Year U. S. Treasury Constant Maturity Rate,” which changes weekly. |
| For monthly adjusting HECMs: the interest rate charged on the loan for the next month is equal to the current 1-Year Treasury rate plus a margin. |
| For annually adjusting HECMs: the interest rate charged on the loan for the next year is equal to the 1-Year Treasury rate plus a margin. |
For proprietary reverse mortgage programs:
| The interest rate charged on the loan for the next six months is equal to the current LIBOR (London InterBank Offered Rate) plus a margin. |
| The latest 1-Year Treasury rate and 1-Month CD rate issued by the Federal Reserve Board, and are published – along with the LIBOR rate – in financial newspapers. Interest charged on a reverse mortgage is “accrued,” which means there is no payment of interest until the loan comes due. |
After the Closing
What happens immediately after the closing?
The law requires a three-day “period of rescission” during which you can cancel the entire transaction with no penalty.
Do I have to maintain my home?
Yes. Because the reverse mortgage is based strictly on the home value, you must maintain your home over the life of the loan at HUD established levels and the same as closing.
What should I incorporate in routine maintenance?
It’s a good idea to maintain roofs, downspouts, siding, plumbing, painting, driveway, landscaping, carpets, appliances, electrical, heating and cooling systems.
Can I repay part or the entire mortgage whenever I want?
Yes, you can do so at any time without penalty. In fact, you can pay off the entire loan if you wish and still have a line of credit available to you. Repayment simply reduces the balance; it does not end the mortgage, unless you choose to do so.
Is the interest I pay on a reverse mortgage deductible from my federal income tax?
Yes, it is, but not until you actually pay the interest, which is typically when the mortgage is paid off.
Can a reverse mortgage be refinanced?
Yes it can and the fees are less. You would typically consider refinancing a reverse mortgage if the value of your home had appreciated substantially, which would allow a larger credit line or lump sum.
How much will be owed when the reverse mortgage is due?
The amount owed to the lender typically includes the amount borrowed to date, the amount of accrued interest and mortgage insurance premiums (for the HECM), servicing fees, and any other costs and fees finances as part of the loan amount. In no event, will the repayment amount exceed the value of the home when the loan comes due.
What happens if I move out of my house after I get a reverse mortgage?
Once you no longer occupy your home as your principal residence for more than one year, the reverse mortgage comes due and must be repaid. Similarly, if you sell your house, the reverse mortgage is paid at that time.
What happens when my house is passed to my heirs?
Once your home is passed on to your heirs, the reverse mortgage comes due. Your heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, they get to keep any remaining equity in the property.
* We are not counselors, but we can provide you with a list of approved counselors from which to choose. |
