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Questions and Answers about Reverse Mortgages 

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Q.  What is a reverse mortgage?

A.  A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free income—without having to sell their home, give up title to it, or make monthly mortgage payments.  The loan only becomes due when the last borrower (s) permanently leaves the home.

Q.  What are the advantages of a reverse mortgage?

A.  There are many.  Here are a few of the most significant:

Remain independent.  A reverse mortgage allows you to remain in your home and retain home ownership.

Stay in your home.  It allows you to remain in your home and retain home ownership.

No monthly mortgage payments.  You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.

Tax-free money.  Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.

*Please conslut your tax advisor

Freedom and flexibility.  The money you get from a reverse mortgage is yours to use in any way you choose.

Q.  If I do a Reverse Mortgage, do I forfeit ownership of my home?

 

A.  No. Just as with other mortgage loans, you remain in title. If you pass away, the home goes into your estate. If you sell or no longer reside in the home as your primary residence, you must pay off the Reverse Mortgage by refinance or sale proceeds.

 

Q.  Can I lose my home in a foreclosure if I do a Reverse mortgage?

 

A.  No. There are no required payments therefore, as long as you live in the home as your primary residence, keep the taxes and insurance paid current, and maintain the property, the risk of foreclosure is removed.

 

Q.  What happens when I die?

 

A.  The home goes into your estate and is handled however your Will designates. Your heirs have 30 days in which to notify the loan servicer of your passing, and then the estate has 6 months to complete the payoff of the Reverse Mortgage by sale or refinance.

 

 Q.  If I take a reverse mortgage, will I still have an estate that I can leave to my heirs?

A.  When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees.  Any remaining equity belongs to you or your heirs.  It’s important to remember that you can never owe more than the home’s appraised value when it is sold.  None of your other assets will be affected by your reverse mortgage loan.

 Q.  Must the heir or the last surviving borrower sell the property to repay the reverse mortgage loan?

A.  No. Repayment may be accomplished by refinancing the reverse mortgage with a traditional “forward” mortgage loan, or through the use of other assets.

Q.  How does a reverse mortgage differ from a home equity loan?

A.  Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash.

They differ in that with a home equity loan you must make regular monthly payments of principal and interest.  However, with a reverse mortgage you do not make any monthly mortgage payments for as long as you stay in the home.

Q.  Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage? 
 

A.  Yes.  Refinancing can make sense if your home increases in value or interest rates drop.

Q.  Do I have to own my home free and clear to qualify for a Reverse Mortgage?

 

A.  No. A calculation is made based on current liens owed, age, etc. As long as there are funds available to payoff all liens, a Reverse Mortgage can be done.

 

Q.  I still owe money on a first or second mortgage.  Can I still get a reverse mortgage?

A. Yes.  You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage.  The funds you would receive in the reverse would be used to pay off whatever existing mortgages you have on the property.

Q.  Do I have to move out of my home if I use up all the available funds from the Reverse Mortgage?

A.  No. A Reverse Mortgage loan does not get paid off until you pass away, sell, or no longer reside in the home as your primary residence.  

 

Q.  When must a reverse mortgage loan be repaid?

A.  Your reverse mortgage loan becomes due and must be paid in full when one or more of the following conditions occurs:  (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems

Q.  Is it possible for my loan balance to become greater than the value of my home?


A.  No.  You can never owe more than what your home is worth.  What’s more, since the reverse mortgage is what is known as a “ non-recourse” loan, the lender cannot seek repayment from your income, your other assets, or your estate.  In other words, the house stands for the debt.

Q.  Can my current income influence my ability to get a reverse mortgage?

 

A.  No.  Since reverse mortgage borrowers need not make monthly repayments, there are no income qualifications.


Q.  How do you determine the amount of cash I am eligible for?

A.  The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, and the appraised value of your home and FHA’s lending limits for your area.  In most cases, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

Q.  How can I use the money I get from a reverse mortgage?

A.  Anything you want including improvements, healthcare expenses, paying off existing debts, or simply enhancing your retirement years.  For many people, the money provides a “financial security blanket”; in case of unexpected expenses arise.

Q.  In what ways can I receive the money from a reverse mortgage?

A.  With most reverse mortgages you have a wide range of payment options, one of which should be ideal to meet your financial needs.

 You can choose to receive the money all at once, as a lump sum.
You can receive equal monthly payments as long as one of the borrowers lives      and continues to occupy the property as a principle residence.

 You can choose to receive equal payments for a fixed period of months.

You can get a line of credit*; which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted.  This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.

You can opt for a combination of line of credit with monthly payments for as long as the borrower remains in the home.
Or, finally, you can choose a combination of the above.

 Q.  What requirements or restrictions are involved in the reverse mortgage process?   Who can qualify for a reverse mortgage?

A.  Seniors 62 years of age or older qualify.  There are no income, health or credit qualifications.

Q.  What kinds of homes are eligible for a reverse mortgage?

A.  First and foremost, the reverse mortgage must be on the borrower(s) primary residence, that is, where they live most of the year.  Most reverse mortgages are taken on simple family, one-unit homes.  Some programs also accept two-to-four unit buildings that are owner-occupied.  Some programs grant reverse mortgages on condominiums and manufactured homes built after June 1976.  Mobile homes and cooperatives are generally not eligible for a reverse mortgage. 

Q.  Would a home that is in a “living trust” be eligible for a reverse mortgage?

A.  Yes.  In most cases a homeowner who has put his or her home in a living trust can usually take out a reverse mortgage.  A review of the trust documents would be made by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.

 Q.  Is face to face client counseling required?

A.  No. Client counseling may be completed over the phone. However, if client counseling is completed over the phone, the client application must be taken face to face.

 

Q.  Is a face to face application required?

A.  No. Client application may be completed over the phone.  However, if the client counseling is completed over the phone, the client application must be face to face.

Q.  Why Do I Need to Get Counseling?  

A.  Counseling is one of the most important consumer protections built into the program.  It requires an independent third-party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage.

You can seek counseling from a local HUD-approved counseling agency, or a national counseling agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), and Money Management International (877-908-2227). Counseling is required for all reverse mortgages and may be conducted face-to face or by telephone.

By law, a counselor must review (i) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives (ii)other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; (iii) the financial implications of entering into a reverse mortgage; and (iv) the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or his or her heirs.

 

Q.  Is there a charge if I decide to change my payment plan structure?

A.  Yes, a small charge is assessed. Example: If you close your Reverse Mortgage with just a Line of Credit, and later decide you want to receive monthly payments instead, you will be charged a fee (currently $20, but subject to change) in addition to the regular monthly servicing fee.

 

Q.  How does a Reverse Mortgage affect my tax filing?

 

A.  On a regular mortgage, you are allowed to write off the interest paid out over the year. On a Reverse Mortgage, there is no tax deduction because there are no payments or interest paid each month. Interest accrues until the loan is paid off. (Please consult an accountant for additional information)

 

 Q.  Are there tax consequences?  What about my Social Security and Medicare benefits?

A..Because reverse mortgages are considered loan advances and not income, the IRS considers them to be not taxable.  Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.

If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as “liquid assets” if you keep them in an account past the end of the calendar month in which you receive them.  You must be careful not to let your liquid assets become greater than these programs allow.

Q.  Will I lose My Government Assistance If I Get a Reverse Mortgage? 

A.  A reverse mortgage does not affect regular Social Security or Medicare 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.  For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine.  Any remaining residual funds remaining in your bank account the following month would count as an asset.  If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid.  To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.

Q.  If I have a line of credit, can I withdraw funds when I want to? And, can I use the funds for what I want to use them for?

 

A.  As long and you have funds available on your line of credit, you may draw from them as you desire, and use the funds as you choose to.  You may choose to receive the money all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these.

 

 

 

Q.  If I do a Reverse Mortgage on my primary home, will I be required to sell my rental properties or vacation home?

 

A.  No, you will not need to sell your other properties.

 

 

Q.  I have a vacation home that I like to stay in a few times each year, sometimes over the whole summer. Does that affect my Reverse Mortgage?

 

A.   The requirement is that the home you have the Reverse Mortgage on must be your primary residence, which means it should be the primary place you live. Vacationing is acceptable. However, if you are gone “12 months and a day”, foreclosure proceedings may be started.

 

 Q.  Can I get a reverse mortgage on a second home or resort property I own?

A.  Unfortunately no.  Reverse mortgages may only be taken out on your primary residence.

Q. What if I am hospitalized?

 

A.  If one borrower is still living in the home, there is no issue. If “12 months and a day” passes without a borrower living in the home, foreclosure proceedings may be started.

 

Q.  Does my home qualify?

 

A.  Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses.  In general, co-ops are not allowed. But remember this must be your primary residence.

 

 

Q.  What kinds of reverse mortgages are available?  Are all reverse mortgages the same? 

A.  No, actual there are three basic types of reverse mortgages.

Federally-insured reverse mortgages.  Known as Home Equity Conversion Mortgages (HECM), they are insured by the U.S. Department of Housing and Urban Development (HUD).  They are widely available, have no income requirements, and can be used for any purpose.

Government-sponsored reverse mortgages.  A Home Keeper is Fannie Mae’s conventional market alternative to the Home Equity Conversion Mortgage (HECM).  It is a government-sponsored enterprise program and works like a HECM loan in many ways. 

However, a Home Keeper reverse mortgage addresses a few needs that are not met by HECM loans, such as individuals with higher property values, condominium owners, and seniors wishing to use a reverse mortgage to purchase a new home.

Proprietary reverse mortgages.  These are private loans with unique features that appeal to certain kinds of borrowers.  An example of such reverse mortgages, which are backed by the companies that develop them, for instance Cash Account Advantage Plan.


Q.  What are the main differences between HECM reverse mortgage and a proprietary product such as the Cash Account Advantage Plan?

 

A.In general, the HECM product may offer a higher loan amount for a lower valued home (for example, under $500,000) depending upon the loan amount caps in specific counties/MSAs, the amount of equity in the home, and the age of the borrower.  For a higher valued home with significant equity, a senior may be likely to qualify for a larger cash payout through a Cash Account Advantage Plan reverse mortgage.  Cash Account Advantage Plans are not currently available in all states.

 

Q.  How much cash will I have to come up with to cover origination fees and other closing costs?


A.  One of the real benefits of a reverse mortgage is that you can use the money you get from your home’ equity (dependent upon final calculations) to pay for the various fees that are part of the loan costs overall.  The costs are simply added to your loan balance, and you pay them back, plus interest, when the loan becomes due-that is when the last surviving borrower permanently moves out of the home or passes away.

 

Q.  Are reverse mortgage interest rates fixed or variable?

A.  All reverse mortgages have variable rates that are tied to a financial index and will vary according to market conditions.