Frequently Asked Questions about Reverse Mortgages
What is a reverse mortgage?
A reverse mortgage is a common name for what is actually called a Home Equity Conversion Mortgage, also referred to as a HECM loan. Reverse mortgages allow a homeowner to convert a portion of the equity in their home into accessible cash without the requirement to repay by way of monthly installment payments.
How safe is a reverse mortgage?
Reverse Mortgages are a very safe income option. Borrower(s) continue to own the home. Since the loans are “non-recourse” the lender is limited to the home’s value at the time of repayment. The heirs are only involved in inheritance, not debt. With a reverse mortgage, you may remain in your home as long as you like. With no mortgage payments to make, this can be an enormous relief of the worry of outliving your savings. A reverse mortgage can help you increase your retirement funds, provide funds for unexpected medical costs and help maximize your financial legacy.
Why should I choose a reverse mortgage?
A reverse mortgage allows more flexibility without decreasing security. You still maintain the title of the property but do not have to make monthly payments as long as the home is your primary residence. Your loan proceeds can be received in a lump sum, monthly installments, or a line of credit. You can even choose to have it be a combination of the three. A reverse mortgage can provide peace of mind. You will never owe more than the value of your house because of mortgage insurance. You will be able to enjoy a comfortable retirement in your very own home.
How do I qualify for a reverse mortgage?
All homeowners must be at least 62 years old. This type of loan does not have any restrictions on income, employment, medical expenses, or credit scores. Contact a Seniors Reverse Mortgage Specialist for more information.
How does a reverse mortgage (HECM) differ from a home equity line of credit (HELOC)?
While both reverse mortgages (HECM) and home equity lines of credit (HELOC) allow you to turn the equity in your home into usable cash, there are some important differences. A home equity loan requires borrowers to make regular monthly payments to repay the loan. These payments begin as soon as you begin to access the funds. This requires the borrower to make enough monthly income to support the repayment of the loan. Additionally, failure to make these monthly payments can result in the borrower losing their home.
A reverse mortgage requires no scheduled repayment of the loan as long as the home remains the borrower’s primary residence. They cannot lose the home for failing to make a monthly payment. There are in fact methods the loan proceeds can be distributed in such a way that it provides the borrower with an income.
Does my home have to be free and clear?
No. Many people get a reverse mortgage to pay off their current mortgage or equity loan, thereby eliminating these monthly payments.
How is the loan amount determined?
The loan amount is determined based on the age of the youngest borrower and the value of the home as determined by an appraisal meeting FHA guidelines. Other factors such interest rates and amount owed on the property are also a factors in determining the amount of funds available to the borrower. It is best to consult a Seniors Reverse Mortgage expert for specific financial analysis based on your current circumstances.
What can I use the equity money for?
You can use the loan money for whatever your needs may be. This could include medical expenses, home remodels, vacation, savings, repaying debts, a new car, or in-home care. It is up to the owner to determine how and when to spend the money. There are no restrictions from the lender.
Is the money I receive taxable?
No. The IRS treats these funds as borrowed money. This is a loan, not income.
Can I be forced to sell my home or vacate my home if the loan amount exceeds the value of my home?
No. The FHA mortgage insurance guarantees to pay the difference to the lender. You cannot be forced to sell your home if the loan exceeds the value.
What happens when I pass away?
Your home will transfer to your heirs per your will or estate plan, just like it will now. The outstanding reverse mortgage balance must be repaid once your estate is settled. Your heirs may sell the home, pay off the outstanding loan balance and keep the remaining cash, or refinance the outstanding loan balance and keep the home. Your heirs are generally given up to a year to resolve the estate and repay the reverse mortgage. In any case, a reverse mortgage is a “non-recourse” loan which means that no matter how much you owe at the time the loan is paid off, you or your heirs can never owe more than the value of the home at that time. Of course, if there are proceeds left when the home is sold, that money goes to either you or your heirs. This is a very safe product for both senior owners and their families.