Reverse Mortgages
Whether seeking money to pay for medical treatment, finance a home improvement, or supplement cash flow, many older Americans are turning to "Reverse Mortgages." Reverse Mortgages allow older consumers to convert the equity in their home to cash while retaining home ownership and above all, not having to make a payment for life as long as you live in the home.
Reverse Mortgage Basics
To qualify for a Reverse Mortgage, you must be at least 60 years old and have paid off all or most of your home mortgage. Income, employment and credit are not a factor and no medical tests or medical histories are required. It is a very easy program to qualify for. If you seek a Reverse Mortgage, you also must undergo mortgage counseling from an independent government-approved "counseling agency." Financial institutions offering proprietary Reverse Mortgages also require counseling. With a Reverse Mortgage, you remain the owner of your home just like when you had a forward mortgage. You are still responsible for paying your property taxes and home-owner insurance and for making property repairs.
Reverse Mortgage Loan Amounts
The amount of money you can borrow depends on the specific Reverse Mortgage plan or program you select. It also depends on the kind of cash advances you choose. Some Reverse Mortgages cost a lot more than others, and this reduces the amount of cash you can receive with each Reverse Mortgage loan program.
The amount you can borrow depends on your age, the equity in your home, the value of your home, and the interest rate. With a Home Equity Conversion Mortgage (HECM), federal law limits the maximum amount that can be paid out. You can be paid in a lump sum, in monthly advances, through a line of credit, or a combination of all three.
Reverse Mortgage Proceeds
The proceeds from a Reverse Mortgage can be used for anything: daily living expenses; home repairs and improvements; prescription drugs; long-term health care; retirement and estate tax planning; and other needs you may have.
Remember, you are not responsible for making any monthly payments as long as you permanently live in your home. The reverse mortgage is repaid when you or the last surviving spouse leaves the home permanently and you or your heirs retain ownership and the equity in your home.
» Return to the top.
Frequently Asked Questions
How Much Money Can I Get?
The amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised home value, interest rates, and in the case of the government program, the lending limit in your area. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
Does My Home Qualify?
Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses.
What are My Payment Plan Options?
You can choose to receive the money from a reverse mortgage 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. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time.
My Understanding is that the Unused Balance in the Line of Credit Option Has a Growth Feature. Does that Mean I'm Earning Interest?
No, you're not earning interest like you do with a savings account. The growth factor, which is equal to roughly the interest that you're being charged, takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.
How Can I Use the Proceeds from a Reverse Mortgage?
The proceeds from a reverse mortgage can be used for anything, whether its to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, pay off existing debts, buy a new car or take a "dream" vacation, cover property taxes, and prevent foreclosure.
How Does the Interest Work on a Reverse Mortgage?
With a reverse mortgage, you are charged interest only on the proceeds that you receive. Most reverse mortgages charge a variable interest rate (although fixed rate products are entering the marketplace) that is tied to an index, such as the 1-Yr. Treasury Bill or the London Interbank Offered Rate (LIBOR), plus a margin that typically adds an additional one to three percentage points onto the rate you're charged. Interest is not paid out of your available loan proceeds, but instead compounds over the life of the loan until repayment occurs.
Are There Any Special Requirements to Get a Reverse Mortgage?
As long as you own a home, are at least 60, and have enough equity in your home, you can get a reverse mortgage. There are no special income or medical requirements.
What If I Have An Existing Mortgage?
You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.
If you find yourself in a deficit situation where you don't have enough money to pay off the existing mortgage, you may use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation (i.e., loan).
What Is the Service Fee Set-Aside?
Under the FHA HECM program, you are charged a monthly servicing fee that ranges from $30-$35 to manage your account once the loan closes. The SFSA is an estimate of what the total servicing fees will be over the life of the loan, by multplying your life expectancy (converted from years into months) multiplied by either $30 or $35.
Although it's not considered a closing cost, the SFSA can equal several thousand dollars, which is deducted from your available loan proceeds. You do not have access to that money, nor do you earn interest.
Will I Lose My Government Assistance If I Get a Reverse Mortgage?
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 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.
Why Do I Need to Get Counseling?
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.
When Do I Pay Back My Loan?
No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.
Under What Circumstances Should I Not Consider a Reverse Mortgage?
Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you're having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options, because in many cases, the home is sold to pay back a reverse mortgage.
» Return to the top.
Reverse Mortgage NJ | Reverse Mortgage NY | Reverse Mortgage PA
Website Design Copyright © 2008
Website designed by: Cherryoneweb.com