When should I consider a Reverse Mortgage?

If you desire to remain in your current home for the foreseeable future and you find…

• You don’t have enough assets in your retirement accounts to maintain your current lifestyle.
• Your current expenses exceed your income.
• You want to plan for the loss of a spouse and their Social Security benefit.
• You want to plan for the reduction of a pension at the passing of a spouse.
• Your spouse has passed on and you are having challenges making ends meet.
• Paying off credit cards or other debts.
• Helping with grandchildren’s education.
• Helping your kids out of a temporary situation.
• You are tired of making mortgage payments.
• You and/or your spouse want to travel.
• You want to make a charitable contribution while you are still living.
• You or your spouse need some in home care and don’t have or want to tap into your retirement assets.
• You want to improve your home in a manner to make it safer or more enjoyable and either don’t have or want to tap into retirement assets.
• You are healthy and want to purchase a life insurance or long term care program.

When should I NOT consider a Reverse Mortgage?

• If you do not want to remain in your current home for at least the next 2-3 years.
• Your home is too big to maintain and you are thinking about downsizing.
• If both you and your spouse’s health is at the point of moving to a facility for more assistance.
• If you have enough assets in your retirement accounts to handle all financial situations.
• You are a strong candidate for Medicaid and your home doesn’t need any improvements.

What is a reverse mortgage?

A reverse mortgage is a safe way for senior citizens age 62 and older to convert part of the equity in your home into cash.  The cash received is tax free because it is a loan of your money.  As long as you or your spouse lives in your home, no payments are made to the lender.  When both you and your spouse move out permanently, whether by death or when you sell your home, the loan is due.

Are there income or credit requirements?

No.  This is the only type of loan available where your credit score or your income makes no difference.   

How much equity in my home do I need to qualify?

At age 62, the minimum age of the youngest person on the deed, you need to have at least 50% equity to qualify for a program.  As you age, the amount of equity that you have to have in the home to qualify goes down.  In other words, at age 80, you would only need to have about 40% equity to qualify.

Does the home have to be my homestead?

Yes!  The only home that qualifies for a reverse mortgage is your permanent residence.    It cannot be your rental property or your vacation home.  Eligible property types include single family home, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses.   

How much money can I get?

The amount of money you qualify to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised home value, the interest rate and the lending limit of the program that best suites your needs.   

Are there any options as to how I receive my released equity?

Yes, you may receive your money as a lump sum, fixed monthly payments either for a set term or for as long as you live your home, as a line of credit, or a combination of any of these.   

Do I earn interest with the line of credit option?

No, you do not earn interest.  You will not receive a 1099 at the end of the year.   The amount of money available to you will grow as you get older which will allow you access to more funds in the future.

How does interest work with a Reverse Mortgage?

Most Reverse Mortgages charge a variable interest rate.  The variable rates are different with each program available.  The rates are linked to an index, most commonly, U.S. Treasury Notes. Interest accrues on the loan proceeds you receive along with the costs or the loan.  The amount due cannot exceed one and a half it’s current value.   

What if my home is not paid off?

As long as there is enough equity in your home, a Reverse Mortgage will pay off your existing mortgage.  The Reverse Mortgage must be in a first lien position.  Any debts on your home must be paid off with either the Reverse Mortgage, money from your savings, or assistance from an outside source.

Will a Reverse Mortgage affect my Social Security or Medicare benefits?

No.  A Reverse Mortgage will not affect either Social Security or Medicare benefits.  However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately.  Funds you retain would count as an asset and could impact Medicaid eligibility.  For example, if you received $10,000 in a lump sum for home repairs and spend the money in the same calendar month, everything is fine.  Any residual funds remaining in your accounts the following month would count as an asset.  If the total liquid resources, from all accounts are greater than $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid.  Play it safe.  Consult with our local Area agency on Aging or contact a Medicaid expert.

Why do I have to have credit counseling?

Counseling is one of the most important consumer protections and it is required by the federal government.  It requires an independent third-party to make sure you understand the program and review alternative options before you apply for a Reverse Mortgage.  There are many counselors available in our area either for face to face or telephone counseling. A list will be provided to you after our initial visit so that you can request the right certificate for the program that best fits your needs.

How many Reverse Mortgage programs are there?

There are several different programs choose from.  On average, 95% of Reverse Mortgages are the FHA/HUD HECM (Home Equity Conversion Mortgage).  At the present time there are four HECM programs, one Fannie Mae program and one Cash Account program through Financial Freedom. When you meet with a Reverse Mortgage Specialist, all the programs will be shared with you and together you will choose the best program for you.

Are there any restrictions as to the use of the funds I receive?

No.  It is your money to do with as you please.  I do suggest that you formulate a plan for the proceeds before you do a Reverse Mortgage.   Some considerations would be to plan for future income needs, pay off credit card or other debt or make home improvements.  I can help you learn about those options and bring various programs to you for your consideration.

How is my Reverse Mortgage repaid?

No monthly payments are due on a Reverse Mortgage as long as you or your spouse lives in your home.  The loan is repaid when you cease to occupy your home as a principal residence.  The amount owed can never exceed the value of your home.

What are the costs involved in getting a Reverse Mortgage?

Many of the same costs that one pays to obtain a home purchase loan or to refinance their existing mortgage also apply to Reverse Mortgages.   There is an origination fee of 2% of the value of the home.  There is a 2% fee for mortgage insurance protection for the FHA HECM.  There are other standard closing costs like title insurance and document preparation fees, all of which are regulated by the government.  Normally, the only out of pocket expense is the appraisal fee.  We have negotiated with a local FHA approved appraiser for a fee of $350, which is paid at the time of the appraisal.

Do we have to continue to pay property taxes and home insurance?

Yes.  With a Reverse Mortgage, you are simply converting home equity to cash.  The same rules of home ownership apply.  As I explain to many people, we are Americans.  We take care of what is ours.  You do have to maintain your home up to normal standards and keep your property taxes up to date.  You are responsible for paying your own property taxes in hazard insurance.