Home > Reverse Mortgage FAQ
Frequently Asked Questions :
What is a Reverse Mortgage?
Who should I look to for advice?
How does a Reverse Mortgage differ from a home equity loan?
Who can get one?
How much cash can I get?
How do I receive my money?
Are there any restrictions on how I can use my money?
Is the process complicated?
How is interest charged?
What happens to my debt?
When do I pay it back?
What's the most I can owe?
Why is it called "Reverse"?
What about Counseling?
For the Family and Advisors of Seniors
Can a living trust or other form of trust take out a Reverse Mortgage?
Do I have to pay Income Tax on the proceeds?
How is interest charged?
Are there out-of-pocket costs?
What is TALC (Total Annual Closing Cost)?
How safe are Reverse Mortgages?
Who really owns my home?
Will my right to public benefits be affected?
How should I shop?
Is getting a Reverse Mortgage the best thing for me to do? Why don't I just sell my home?
What if there is already a conventional mortgage on the home?
If there are no payments, what are my responsibilities?
What happens if my spouse or I need to go to a nursing home?
What happens if we decide to move?
What if I decide to sell my home?
Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
What happens to our home when we pass away?
Will my heirs owe anything to the mortgage lender if I die before the loan is paid off?
If my home appreciates in value while I have a Reverse Mortgage, who will be entitled to that money?
Can I sell my home to my children and continue to live in it?
What is a Reverse Mortgage?
A Reverse Mortgage is loan against your home that requires no repayment for as long as you live there. It enables homeowners age 62 and over to tap into the equity in their home, converting value into income, and never have to make mortgage payments, move, or sell the home. It truly is a "mortgage in reverse". A Reverse Mortgage loan puts to use the value in your home so you can receive cash, a tax-free monthly income, and/or a line of credit. There are no income or credit qualifications and never any monthly payments to make. A reverse mortgage is a way to stay in your home and receive cash to use for anything you see fit - payoff your current mortgage, payoff other debt, remodeling or repair, health care, or a trip to Tahiti. Best of all, you retain title and remain living in your own home.
Who should I look to for advice?
Decide who you trust, and then discuss your intentions with them. It may be your children, a family member or close friend, spiritual advisor, your attorney or financial advisor. Someone that looks out for your best interest's and can help you make this decision. Agencies such as AARP and NRMLA are also excellent sources for advice on Reverse Mortgages. We want you to feel confident in your decision and we encourage all interested parties to participate in the discussions regarding your reverse mortgage. The more informed everyone is, the easier it is to see the many benefits and "safety nets" that are built into the Reverse Mortgage.
AARP American Association of Retired People
NRMLA National Reverse Mortgage Lenders Association
How does a Reverse Mortgage differ from a home equity loan?
While both Reverse Mortgages and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. And, in order to qualify for such a loan, you must meet credit qualifying standards and have a monthly income great enough to make the monthly payments. Additionally, if you fail to make your monthly repayments, you could lose your home.
On the other hand, obtaining a Reverse Mortgage requires NO credit or income qualifications and you will NEVER have to repay the loan as long as the home remains your principal residence. You can't lose your home by failing to make monthly payments because there are no monthly payments to make. In fact the Reverse Mortgage can be structured to pay you a monthly income.
Who can get one?
Qualifying for a reverse mortgage is simple. Borrowers need to be at least 62 years of age, own their own home and use the home as their primary residence. A certain amount of home equity is required to make the loan work. The percentage of available equity is a determining factor in how much you can receive when refinancing to a Reverse Mortgage. Generally speaking, the more equity you have equates to greater possibilities in how your Reverse Mortgage can be structured, resulting in more cash or income to you. However, borrowers with lower amounts of equity can still benefit greatly by simply eliminating their current mortgage and the monthly payments associated with that mortgage.
How much cash can I get?
The amount of cash you can get from a reverse mortgage depends on the program you select and - within each program - on your age, home, and interest rates. A borrower may receive $30,000 more from one program over another. But no single program works best for everyone. For all but the most expensive homes, the federally-insured "Home Equity Conversion Mortgage" (HECM) generally provides the most amount of cash. In general, the most cash goes to the oldest borrowers living in the homes of greatest value at a time when interest rates are low. On the other hand, the least cash generally goes to the youngest borrowers living in the homes of lowest value at a time when interest rates are high. I will be happy to assist you in evaluating your options and calculating the maximum amount of money that will be available to you. This service comes to you at No cost and No obligation. You are also welcome to use our handy benefits calculator on the home page of this website.
How do I receive my money?
First, any existing mortgage or liens against the house (if applicable) will be paid off through the proceeds of the Reverse Mortgage. You then can take the remaining reverse mortgage funds as a lump sum, a line of credit that actually grows in value each year, or as a set monthly amount. And the best part of all is you can take any combination of these choices. You may prefer some money as a lump sum to perhaps pay off bills, some as a line of credit to meet future needs, and some as a monthly amount to supplement your current income. You can even change your mind down the road. It's your equity. It's your money. It's your choice to receive your money from the equity in your home, in a manner that best suits your needs.
Are there any restrictions on how I can use my money?
None whatsoever! You can use the proceeds any way you choose. After all, it is your money. You are tapping into your own equity in the property that you own. The only requirement is that any outstanding lien (mortgage or other debt against the home) on the property must be paid in full at the time the reverse mortgage is done. After that, the funds from a reverse mortgage can be used for virtually any purpose. You can supplement your current income, pay off bills, make home improvements, travel, the list is virtually endless.
Is the process complicated?
We have worked hard to simplify the process. We believe the first step is the most important. That's when you and your Reverse Mortgage Advisor review your goals and objectives and decide on which plan best meets your needs. From this point we are with you all the way, guiding you through a seamless loan process.
How is interest charged?
The interest rate on a reverse mortgage can be adjustable or fixed. Most are tied to the 1-year Treasury Index and others are based on the Libor Index or Prime Rate. There is a life-of-the-loan cap on the interest rate. You are not charged interest on monies that have been approved but not yet withdrawn.
What happens to my debt?
Each month your loan balance grows as you take cash advances, make no repayment, and have interest charges added to the amount you owe. The terms of your Reverse Mortgage allow for you to NEVER be required to repay this debt until you permanently move from your home. From the time you leave your home you or your heirs have one year to settle the debt with the Reverse Mortgage lender. The payoff amount would consist of the original loan amount plus any cash advances and all accrued interest.
When do I pay it back?
The loan balance becomes due when the last surviving borrower dies, sells the home, or permanently moves away. "Permanently" generally means you have not lived in your home for 12 months in a row. The loan must be repaid before the home's title can be transferred to the borrower's heirs. The senior homeowner or his heirs could repay the loan by selling the home, using other funds from the borrower's estate or funds of the heirs, or by taking out a new forward mortgage against the home.
What's the most I can owe?
The total amount you will owe at the end of the loan (your "loan balance") equals
• all the cash advances you've received (including any that were used to pay loan fees or costs)
• plus all the interest on them -
• up to the loan's "nonrecourse" limit
Because the loan is a "Non Recourse Loan." you will never owe more than the value of the home at the time the loan is repaid. The homeowner will NEVER pay the Reverse Lender a greater amount of money than what the house sells for. The lender does not have legal recourse to anything other than the value of the home at the time the loan is to be paid off. Not your income, your other assets, or those of your heirs. So even if you receive monthly loan advances until you are aged 115, and your home declines in value between now and then, and the total of monthly advances becomes greater than your home's value - you will still never owe more than the value of your home. If you or your heirs sell your home in order to pay off the loan, the debt is guaranteed to be limited to the net proceeds from the sale of your home.
Why is it called "Reverse"?
With a Reverse Mortgage your loan grows larger as you take cash advances, make no repayment and have interest added to the amount you owe (your "loan balance"). Reverse Mortgages are sometimes referred to as "rising debt, falling equity" loans. As the amount you owe (your debt) grows larger, your equity (that is, your home's value minus any debt against it) generally gets smaller.
In a "forward" mortgage (the kind you normally use to buy a home), your regular monthly repayments make your debt go down over time until you have it all paid off. Meanwhile, your equity is rising as you owe less and less, and as your property value grows (appreciates). So, forward mortgages are "falling debt, rising equity" loans - just the opposite of reverse mortgages.
Here's another way to think of it. In a forward mortgage, you use debt to turn your income into equity. In a reverse mortgage, you use debt to turn your equity into income. You are reversing the deal you used to buy your home. Then, you had income and wanted equity. Now, you have equity and want income. In both cases you use debt to turn what you have into what you want.
What about Counseling?
For the Family and Advisors of Seniors.
We encourage all interested parties to participate in the discussions regarding a reverse mortgage. Your children, after all, only want the best for you and are looking out for your needs. We even sometimes talk to friends, other relatives, spiritual advisors, or anyone who is helping you make this decision. The more informed everyone is, the easier it is to see the many benefits and "safety nets" that are built into the reverse mortgage.
Can a living trust or other form of trust take out a Reverse Mortgage?
Yes, but subject to the conditions of the trust. The entire trust must be approved by the underwriter of the Reverse Mortgage loan.
Do I have to pay Income tax on the proceeds?
The proceeds received from a reverse mortgage are loan advances and are not considered taxable income by the IRS. We recommend that you consult your tax advisor.
How is interest charged?
The interest rate on a reverse mortgage can be adjustable or fixed but more often are adjustable. Most are tied to the 1-year Treasury Index, however, others are based on the Libor Index or Prime Rate. There is a life-of-the-loan cap on the interest rate. You are not charged interest on monies that have not yet been withdrawn. The interest will change periodically based on the terms of the mortgage note. A change in the adjustable rate has no effect on the amount or number of loan advances you receive. Interest rate changes will cause the loan balance to grow faster with a higher rate or slower with a lower rate.
Are there out-of-pocket costs?
The out-of-pocket cash cost to you is most often limited to the fee that covers a property appraisal (to see how much your home is worth). Based on equity, all of the other closing costs can be included in the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe - and pay interest on.
What is TALC (Total Annual Loan Cost)?
Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes ALL of the costs and benefits. This disclosure is called Total Annual Loan Cost (TALC) and it shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend.
If you end up living in your home well past your life expectancy or your home appreciates at a low rate, you might get a true bargain. But if you die, sell, or move within just a few years or your home appreciates a lot, the true cost would be higher. There's no way of avoiding this fundamental risk. You just have to understand it in general, assess the potential range of TALC rates on a specific loan, and decide if it's worth the benefits you expect you'll gain from the reverse mortgage.
How safe are Reverse Mortgages?
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. Your 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 is an enormous relief of the worry of outliving your savings. Reverse mortgages can help you increase retirement income, provide funds for health care, reduce the impact of and provide funding for estate taxes and maximizes legacy asset transfer.
Who really owns my home?
You do. A reverse mortgage is a lien just like a traditional mortgage. Repayment is required when the last surviving borrower sells the house, moves away or dies. The remaining equity in your home, if any, belongs to you or your heirs. None of your other assets will be affected by a reverse mortgage loan. This debt will never be passed along to the estate or heirs.
Will my right to public benefits be affected?
Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs are not affected by your loan advances if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a "liquid asset." If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility. Therefore, a Reverse Mortgage borrower who also receives SSI should never draw more money than he
or she actually needs to spend that month. Regulations for state-administered programs such as Medicaid, AFDC, and food stamps and for state-funded welfare programs (such as state supplements to SSI), all have different eligibility requirements. Therefore, we suggest that you consult a benefits specialist at the local offices for these programs to determine how Reverse Mortgage payments may affect your particular situation
Is getting a Reverse Mortgage the best thing for me to do? Why don't I just sell my home?
Only you can decide what a reverse mortgage is worth to you. It probably depends most on what you would use one for. Increasing your monthly income, having a cash reserve (equity line of credit) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life are all benefits that can be achieved through a reverse mortgage.
However, in evaluating the worth of a reverse mortgage it may be helpful to consider a major alternative: selling your home and moving. Consider the following:
• How much money could you could get by selling your home?
• What it would cost you to buy & maintain or rent a new one?
• How much you could safely earn on sale proceeds not used for a new home?
Also, looking into other housing options, comparing housing alternatives first-hand and in-person, may help you decide if a reverse mortgage is best for you.
• You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find.
• Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be.
Either way, researching your options will give you a good idea of the overall costs and benefits of staying versus moving. This will give you a better sense of what's valuable to you. And make it easier to evaluate the cost of a reverse mortgage.
What if there is already a conventional mortgage on the home?
The reverse mortgage is often used to pay off an existing loan. Existing mortgages must be paid off at closing.
If there are no payments, what are my responsibilities?
Like all homeowners, you still are required to pay property taxes and provide property insurance and maintain the home. The home must be your principal residence.
What happens if my spouse or I need to go to a nursing home?
As long as one homeowner remains in the home, the reverse mortgage does not need to be closed. If the last homeowner needs to go to a nursing home but intends to return, the reverse mortgage doesn't need to be repaid until that homeowner has been gone for 12 consecutive months.
What happens if we decide to move?
Your home needs to remain your principal place of residence when you have a reverse mortgage. You may leave your home for any reason for up to 12 consecutive months. If you decide to sell your home, you simply repay the reverse mortgage loan balance from the sale proceeds exactly as you would with a conventional forward mortgage and keep the remaining cash.
What if I decide to sell my home?
If you choose to sell your home, the outstanding loan balance becomes due and payable to the mortgage lender at the time of sale. You would receive any proceeds exceeding the loan balance.
Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
No. As long as you continue to occupy the property as your principal residence and abide by the loan agreement, which states that you are responsible for property maintenance and payment of all property taxes and insurance, you can stay in your home as long as you choose. No deficiency judgment may result from your Reverse Mortgage.
What happens to our home when we 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 homeowners and their families.
Will my heirs owe anything to the mortgage lender if I die before the loan is paid off?
Upon your death, the loan balance, consisting of payments made to you or on your behalf (such as fees) plus accrued interest becomes due and payable. Your heirs may repay the loan by selling the home or by paying off the Reverse Mortgage loan so that they may keep the home. If the loan balance exceeds the value of your property, your estate will owe no more than the value of the property. No additional financial claims may be made against your heirs or estate.
If my home appreciates in value while I have a Reverse Mortgage, who will be entitled to that money?
With a Reverse Mortgage, you are legally required to pay back to the lender only the outstanding balance. Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs.
Can I sell my home to my children and continue to live in it?
If you sell your home to your children, or any other individual, the Reverse Mortgage loan will be due and payable at settlement. After the loan is repaid, occupancy arrangements are at the discretion of the new owners.
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