LEARN THE TRUTH ABOUT REVERSE MORTGAGES AND ANSWER QUESTIONS ABOUT REVERSE MORTGAGES
To qualify for a reverse mortgage, the home must be your primary residence. 1-4 family residences, condos, and manufactured homes are eligible, but vacation homes, secondary residences and rental properties are not currently eligible.
Q: Is it okay if I already have a mortgage on my home?
Yes. However, any existing mortgages or liens on your home must be first paid off with the reverse mortgage loan proceeds before you can receive any leftover funds. In most cases, the primary reason people take a reverse mortgage is to eliminate their existing mortgage and the monthly payment associated with it.
Q: What if the amount of my reverse mortgage is not enough to completely pay off my current mortgage?
Since a reverse mortgage must be a 1st lien on your property, any existing mortgages and liens on your home must be paid in full. However, if the proceeds from your reverse mortgage are not adequate to pay off all current liens on the home, you can use savings or other sources of cash combined with your reverse mortgage proceeds to pay off all liens on the property at closing.
Q: Can I lose my home?
Similar to all other types of home loans, with a reverse mortgage you retain title and control of your home. The reverse mortgage loan is only a lien. You can remain in your home for as long as you wish as long as you continue to pay your property taxes, home insurance, and association dues (if a condo) in a timely manner. You also must reasonably maintain the condition of the property. These obligations are exactly the same for all traditional mortgage loans.
Q: Are there income or credit requirements for reverse mortgages?
As a protection to consumers, the U.S. Dept. of HUD has recently required borrowers to provide some limited income and credit information to insure that they are able to continue paying taxes, insurance, and other property expenses over the long term.
Q: If I have bad credit, will my reverse mortgage be denied?
Not necessarily. If your credit history is not satisfactory, it doesn’t necessarily mean your loan will be denied, however you may be required to have a mandatory set-aside for the lender to pay your taxes and insurance. This set-aside would reduce the amount of funds available to you directly.
Q: Are the proceeds from a reverse mortgage taxable as income?
No, because a reverse mortgage is a loan, you are only borrowing against the equity in your home. This is not considered income, and therefore it is not taxable as income. Contact your tax advisor.
Q: Will my children lose their inheritance?
No. When you leave the home or sell it, the reverse mortgage balance is paid in full and the remaining equity either goes to you or your heirs.
Q: Will a reverse mortgage affect my Social Security or Medicare benefits?
No. Reverse mortgages have no effect on your Social Security or Medicare benefits, however if you are receiving Medicaid benefits, you may want to consult an elder law professional before proceeding. A borrower's benefits will not be impacted. HECM loan funds are considered loan proceeds and not income. However, Medicaid and other need-based benefits may possibly be affected. What's more the longer you wait to access Social Security benefits, the more you may receive each month. A HECM can help delay accessing Social Security and may boost your lifetime retirement income.
Q: Can I get a reverse mortgage if my home is in a living Trust?
Yes. As long as the living trust meets certain HUD requirement (nearly all of them do), your home qualifies for a reverse mortgage.
Q: Can I use a reverse mortgage to purchase a home?
Yes. If you are downsizing or purchasing a new home as your primary residence, a reverse mortgage can help you finance the purchase. The down payment would be the difference between the sales price and the amount available from your reverse mortgage.
Q: I know I don’t have to make monthly mortgage payments with a reverse mortgage, but are there other required obligations?
Yes. You are responsible for paying your home insurance, property taxes, and any association dues (if a condo) in a timely manner. You are also required to maintain the reasonable condition of your home.
Q: Can I prepay my reverse mortgage?
Yes. Even though there are no required payments on a reverse mortgage, you can make full or partial payment any time you wish with no penalty.
Q: What is the Mortgage Insurance Premium (MIP)?
The U.S. Dept. of HUD insures reverse mortgages and for that they charge a fee at closing. For this fee, they insure that you will always get your funds for the life of the loan, and that you will never have to pay back more than the value of your home at the end of the loan. Effective 10/2/2017, borrowers will be charged an upfront MIP of 2% of the appraised value of the home. Annual MIPs have been also reduced – borrowres wil now be charged an annual MIP of 0.5% of the outstanding mortgage balance- reduced from 1.25%
Q: Can I ever owe more than the value of my home?
No. A reverse mortgage is a “non-recourse” loan which means that you never have to pay back more than the value of your home at the time the home is sold. This is true regardless of your loan balance when you or your heirs sell it. Because HUD insures reverse mortgages, the government would be responsible to pay the lender the difference. This is why you pay a Mortgage Insurance Premium (MIP) to HUD.
Q: How much do I pay back at the end of the loan?
At the end of the loan, you would pay back the total of your initial draws and any subsequent draws, plus all interest and fees accrued during the life of the loan.
Q: Do I still own my home?
Yes. Just like all other traditional loans, you still own your home, and have complete control over it. The reverse mortgage is only a lien on the home.
Q: What happens to my home if I die?
At the time the last surviving borrower dies, the reverse mortgage must be paid in full with all interest and fees. This can be done by the heirs selling the home or paying off the reverse mortgage with cash or new financing. Surviving eligible non-borrowing spouses can stay in the home without foreclosure as long as they comply with the loan terms
Q: If I die and my heirs wish to sell the home to pay off the reverse mortgage how much time will they have to do so?
If your heirs cannot afford to pay off the reverse mortgage without selling the home, HUD will give at least 6 months for the sale, and extensions can be granted in certain circumstances.
Q: How do I know how much I owe during the term of the loan?
Each month you will receive a monthly statement which will give you the status of your account including such things as your outstanding loan balance, periodic interest charges and fees, and other pertinent information.
Q: If I choose a credit line, how do I request funds when I need them?
Line of credit draws are typically done by mailing or by faxing a request form signed by the borrowers. The funds are commonly wired to the borrowers account within 3-5 days. For emergencies, there are expedited methods. Talk with your reverse mortgage servicer.
Q: Can I change the way I get my money after I close?
Yes. There are three ways to receive money from a reverse mortgage, a lump sum, a monthly payment (to you), or a line of credit. If after you close you wish to receive your funds in a manner different than the method you chose at closing, you have the option of switching methods by notifying the servicing lender at any time.
Q: If interest keeps accruing on my reverse mortgage over time, doesn’t it become very expensive?
It depends on how you look at it. A reverse mortgage has no monthly payments, so as interest and fees accrue, your loan balance goes up over time, and your savings account stays the same. With a traditional loan, your loan balance would not go up, but you would be making monthly payments, so your savings account would be going down over time.
Q: If my spouse is not 62 years old yet, can we qualify jointly for a reverse mortgage?
No. All borrowers must be at least 62 years old at the time of closing. However, in certain circumstances under new HUD rules, spouses who are not yet 62 may still have rights to stay in the home for their lifetimes even if the borrower spouse passes away or leaves the home. Loans are available to borrowers with a non-borrowing spouse under the age of 62.
Surviving eligible non-borrowing spouses can stay in the home without foreclosure as long as they comply with the loan terms
Non-borrowing spouses can be on title and be under 62 reverse mortgages for seniors