If you are interested in a Reverse Mortgage, there are a few things you need to know before you move forward with the loan process. Finding the right answers to your questions will help you decide if a Reverse Mortgage is right for you. Below are 12 commonly asked questions you should read if you plan to pursue a Reverse Mortgage.
What is a Reverse Mortgage?
A Reverse Mortgage allows seniors to access the equity they have built up in their home. A Reverse Mortgage is a tool designed for homeowners 62 and older and it allows seniors to stay in their home(s), eliminate their current monthly mortgage payment*, and turn their equity into tax free** cash. Unlike traditional home loans or second mortgages, no repayment is required until the homeowner(s) no longer occupies the property as their primary residence.
Can I qualify for a Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM)?
The Home Equity Conversion Mortgage (HECM) is a program offered by the Federal Housing Administration (FHA). To qualify for a HECM, all parties on the title of the home must be 62 years of age or older, and the home must be your primary residence. You must either own your home outright or have a low mortgage balance that can be paid off at closing.
Can I apply for a HECM even if I did not buy my present home with a FHA mortgage loan?
Yes, you may apply for a HECM regardless of whether or not you purchased your home with an FHA insured mortgage.
What types of homes won’t qualify for a Reverse Mortgage? What types of homes do qualify?
Vacation homes or other secondary residences, and rental properties of more than four units, do not qualify. Homes that do qualify are single family homes or 2-4 unit homes with one unit occupied by the borrower. HUD-approved condos and manufactured home that meet FHA requirements are also eligible.
What are the differences between a Reverse Mortgage and a home equity loan?
With a home equity loan you must have satisfactory income and you must make monthly payments on the principal and interest. You are subject to a credit check which will determine how much you can borrow and what kind of interest rate you will pay. With a Reverse Mortgage, there is no credit check, no monthly income requirements, and no monthly mortgage payment. If you choose to, you can make payments on your Reverse Mortgage, but no monthly payments are required. With a Reverse Mortgage, you are still responsible for the payment of real estate taxes, insurance, and maintenance costs.
Do I or my heirs have to sell the property to repay a HECM Reverse Mortgage?
No, repayment can be accomplished by refinancing the existing Reverse Mortgage into a conventional mortgage loan. If your heirs choose to sell the property and the proceeds exceed the value of the home, they can keep the difference. For cases where the proceeds are insufficient to pay off the loan, then the lender absorbs the difference. If your heirs choose to keep the property, they will have to refinance the entire amount of the existing mortgage balance regardless of the home’s appraised value.
Will I ever owe more than my home is worth?
No, with a HECM Reverse Mortgage, you will never owe more than the home is worth regardless of the loan balance. Once the owner(s) passes away or moves out of the home permanently, the heirs can sell the property and pay off the existing mortgage balance or they can refinance the property. If the heirs choose to keep the property, they will have to refinance the entire amount of the existing mortgage balance regardless of the home’s appraised value.
How much money can I get from my home?
The amount you may borrow will depend on a few things including:
· the age of the youngest borrower
· current interest rates, and
· the initial mortgage insurance premium – your choices are HECM Standard or HECM Saver.
Usually a person can borrow more cash with the HECM Standard option. You can receive an estimate of HECM cash benefits with online calculators from Reverse Mortgage companies.
Should I use an estate planning service to find a reverse mortgage lender?
You can easily find FHA- approved lenders online at http://www.hud.gov or by contacting a HECM counselor for a listing.
How do I receive my payments?
You can select you receive your payments in 5 different ways:
Lump-sum Term payments – Equal sum of money for a fixed period of months or years Tenure payments – Like term payments but they do not end until you no longer occupy the home Line of Credit A combination of any of the above payment methods. Example: partial lump sum with the remainder paid to you monthly.
Does the money from a Reverse Mortgage affect Social Security, Medicare or pension benefits?
The proceeds from a Reverse Mortgage do not affect your Social Security, Medicare or pension 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. We recommend that you consult your financial advisor.
What if I change my mind and no longer want the loan after I go to closing?
By law you have three calendar days to change your mind and cancel the loan. This three day period is called right of rescission. At closing you will find more information about the rescission period. Companies may vary in how they provide you with information during the rescission period of the loan. Make sure you get the proper information, like phone numbers, addresses and the names of all parties involved.
Once you have considered the questions above, you should be on your way to deciding whether a Reverse Mortgage might make financial sense for you.
A Reverse Mortgage can give you the cash you need to do things you want to do with your retirement. You can use your tax-free** cash any way you wish. Contact us today, we can get you started on smooth, and easy process.
*Homeowner is still responsible for taxes, insurance and property maintenance.
**Please consult with your financial advisor.
***May affect SSI or Medicaid. Please consult with your financial advisor.