One of the common things you hear from clients about the reverse mortgage program is they had no idea what a reverse mortgage was, if they could qualify and what it could for them overall. Here you will find some of the most common questions we hear with clients and the answers.
What is a reverse mortgage?
A reverse mortgage is a financial tool that allows people over 62 who own their home to access the equity they have built up in their home. It eliminates any current mortgage by repaying the mortgage back with the proceeds of the reverse mortgage and gives the senior cash to use any way they want. There are currently no income or credit requirements. The only requirements are that they use the home as their primary residence, they are at least 62 years old, and they have sufficient equity in their home.
Can a reverse mortgage be taken out if there is already a mortgage on my home?
You can receive a reverse mortgage if you have a mortgage on your home or if you own your home free and clear.
What type of homes won’t qualify for a reverse mortgage?
Vacation homes or other secondary residences, and rental properties do not qualify for a reverse mortgage.
Will I have any tax liability for the reverse mortgage proceeds?
The proceeds you receive from your reverse mortgage are in tax-free* cash. We recommend you talk to a tax advisor for specific questions about your situation.
What about a home in a “living trust”?
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.
Does the money from a reverse mortgage affect Social Security, Medicare or pension benefits?
The proceeds from a Reverse Mortgage do not affect these 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 before going forward with the reverse mortgage to ensure your Medicaid benefits are not affected.
Can the interest charged on my loan principal be deducted for tax purposes?
The interest accrues and is deductible when the loan balance and interest is repaid, when the borrower permanently leave the property. We recommend that you consult your financial advisor.
What are the upfront costs associated with a reverse mortgage?
Most of the costs can be financed as part of your new reverse mortgage including origination fee, closing costs, and charges incurred by the title and escrow companies. The only out of pocket expenses the borrower must pay during the actual process is the counseling fee and our upfront appraisal deposit. The counseling fee is approximately $125 and can vary by state and location. Our upfront appraisal deposit of $375 is sued to cover the appraiser’s expenses.
What is due when the loan is repaid?
The borrower will pay back the cash advances they have received plus accumulated interest and any upfront costs that were financed initially will also be added to the loan balance.
Will I ever owe more than my home is worth?
All reverse mortgages are “non-recourse” loans which means that the original borrower(s) 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 home’s appraised value.
Will the lender take my house?
No, the title remains in the name of the borrower(s),*** however, taxes and insurance must be kept current and the property must be maintained in order to avoid early repayment of the entire loan amount.
If there are no payments, what are my responsibilities as a homeowner with a reverse mortgage?
You are required to pay your property taxes, keep current the property insurance in place, maintain the home and notify the lender if you will be away from the property for an extended period of time.
When does the loan become due and payable?
The loan is due and payable when the last remaining borrower sells the property, permanently leaves the home, or passes away. Until these events take place you live in the home and make no payments to the lender.
Do I or my heirs have to see the property to repay the loan?
No, repayment can be accomplished by refinancing the existing reverse mortgage to a conventional mortgage loan. If your heirs sell the property and the proceeds exceed the amount of the home, they can keep the difference. For cases where the proceeds are not sufficient to pay off the loan, then the bank 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 home’s appraised value.
If you still have questions about the reverse mortgage program please give us a call. Our licensed professionals we be able to discuss with you your financial situation and determine if a reverse mortgage makes sense for you and your financial goals.
Kristen Curzytek is a writer for the One Reverse Mortgage blog. One Reverse Mortgage is the largest retail reverse mortgage lender in America. Wondering how much tax-free* cash you could get from a reverse mortgage? Check out the reverse mortgage calculator to see how much tax-free* cash you can qualify for.
*Please consult with your financial advisor.
**May affect SSI or Medicaid. Please consult with your financial advisor.
***You remain responsible for counseling costs, taxes, insurance and maintenance expenses.