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Reverse Mortgage Frequently Asked Questions

What is a Reverse Mortgage?
This special type of mortgage allows senior homeowner to access the equity that they have built up in their home and use the money however they wish — all while letting them stay in their home. It's called a reverse mortgage because the flow of payments is reversed from a traditional mortgage. The lender makes payments to the senior, or arranges a line of credit that is available for their use. This differs from a traditional mortgage used to purchase or refinance a home in which they must make monthly mortgage payment to the bank.

What is a HECM Reverse mortgage?
HECM stands for Home Equity Conversion Mortgage. A HECM is the Federal Housing Authorities federally backed Reverse Mortgage.

What are the advantages of obtaining a Reverse Mortgage?
There are many benefits to obtaining a Reverse Mortgage. Here are just a few.

How is a Reverse Mortgage different than a home equity loan?
A home equity loan and a Reverse Mortgage use the equity you have in your home to provide you with readily available cash. The major difference is that with a home equity line of credit you are responsible to make monthly payments on principle and interest. Also, on the home equity loan you must have sufficient income versus debt ratio with good credit to qualify. With a Reverse Mortgage, income and your credit scores are not a factor and you do not have to make monthly payments as long as you stay in the home.

Who is eligible for a Reverse Mortgage?
The Federal Housing Administration requires that all parties must be at least 62 years old; you must have a significant amount of equity in the property. Credit scores and income are not used to qualify for this loan. You qualify with the equity in your house, your age and the interest rates at the time. There are now programs for primary residences as well as second homes.

Is it possible to get a Reverse Mortgage when I already have an existing mortgage?
Yes, the Reverse Mortgage will pay off your existing mortgage. You will then choose how to use the remaining money. With the Reverse Mortgage market constantly changing, many time the new products can lower your interest rate, save you equity, and provide you more money!

How can I receive my money?
The money you are eligible to receive can be received in various ways. You can receive: a lump sum, monthly payments, term (a certain number of years), a line of credit (LOC) or any combination of the options. The unused portion in the line of credit grows at .5% above the interest rate making the LOC the most popular option.

How much money can I get?
The amount of money you qualify for depends on many factors. The most important are age (older you are the more money you are eligible for), interest rates (the lower the rates the more money you receive), what type of Reveres Mortgage you select, where your home is located (FHA has county lending limits) and the value of your home.

How do I receive the money?
You can receive your money either by a check through the mail or an automatic deposit into your bank account. If you choose the monthly payment plan the money will be deposited into your account (or mailed) on the first of every month.

If I choose the monthly payment option, at what age do they stop?
Never, you will always receive the same payment on the first of every month for as long as you stay in the home.

Is the money I receive going to be taxed?
NO! The funds generated from a Reverse Mortgage are considered loan advances and is not counted as taxable income. You are free to spend all the money in the way you choose to.

What happens if I take all the money in a lump sum or exhaust my line of credit
Once you have taken all available funds, you no longer have access to pull out any more money. You can always make payments in to re-establish a line of credit.

Can I write off the interest from the Reverse Mortgage?
Yes, with certain products you can make monthly payments if you choose and the interest is deductible. Typically the borrowers will receive a interest deduction at the time of sale. *Please consult with your tax advisor for state to state information on interest deductions.

Are my Social Security and Medicare benefits affected?
Having a Reverse Mortgage should not affect you Social Security and Medicare benefits. You must be careful not to let your total liquid assets become greater than what these programs allow. *It would be wise to consult your tax advisor on this issue.  Nothing in this information should be taken as tax advice.

When do I have to pay the Reverse Mortgage back?
Reverse Mortgages do not have to be paid back until the borrower passes away, sells the home, fails to live in the home for 12 consecutive months, fails to pay the taxes and insurance, let the property deteriorate beyond reasonable wear and tear or moves out. The amount that you owe is the total amount of the cash you have received plus the interest accrued.

Can the lender take my home away?
NO! You do not have to repay the loan as long as you or one of the borrowers continues to live in the house. The borrowers are responsible for keeping the taxes and insurance paid and the regular maintenance of the home.

What happens if my loan balance is greater than what the house is worth?
You can never owe more than what your home is worth. Reverse Mortgages are "non-recourse" loans which means the lender cannot seek repayment of the loan for any amount over what your home is worth. You and your heirs are safe.

What if I decide to sell my home?
If you decide to sell your house, then the outstanding loan balance becomes due and payable. Any money remaining after the sell of the house will be distributed to you or your heirs according to your will. If you owe more than the house is worth the lender can only receive what the house is worth and your heirs are NOT responsible for the difference.

How long do the heirs have to sell the property?
As long as the property is being marketed in good faith, the lender will allow three month periods up to one year to sell the house. If the Reverse Mortgage has a low balance and the heirs would like to keep the property after the last borrower passes away, they must qualify to refinance in their name according to who the property was left to in the will.

What types of properties are eligible for a Reverse Mortgage?
The property must be a single family residence or a 2-4 unit property that you own and reside in. Townhouses, condos, duplexes and some manufactured homes are eligible. Condos must be in a FHA approved complex.

Can I obtain a Reverse Mortgage on a second home?
Yes, there are proprietary products that will allow you to do a Reverse Mortgage on a second home.

Can I qualify for a Reverse Mortgage if I have a "Living Trust"?
YES! Reverse Mortgage are allowed on revocable trusts. If you have an irrevocable trust you will have a hard time getting a Reverse Mortgage.

What kinds of Reverse Mortgages are available?
In this market there are always new products being offered. HECM's are insured by the government and make up 90% of the Reverse Mortgages on the market. Proprietary Reverse Mortgages are also an option. These are all private "non-recourse" Reverse Mortgages that are specific for certain borrowers. An example would be for clients whose houses are worth more than the FHA limits in their county. There are also fixed-rate options as well as a variable rate option. The fixed rate allows some security, but the variable option will provide you with more available money.

What are the differences between a HECM and the proprietary Reverse Mortgages?
The HECM product will usually offer a higher loan amount for a lower valued home (Under 550,000) depending on the county the property is located in. For a higher valued house, the proprietary products usually offer the borrower access to more money. There are slight differences in the products, but they are all "non-recourse" loans. The proprietary products interest rates are usually higher and they both have fixed or variable interest rate options.

What are the fees associated with a Reverse Mortgage?
There are fees and costs accompanying a Reverse Mortgage just like a traditional mortgage. FHA charges 2% of the appraised value or the maximum lending limit, whichever is less. There is also a standard origination fee and the normal closing fees such as title, escrow, appraisal and inspections. These fees are included in the loan and are not out-of-pocket expenses. The only out-of-pocket expense may be the appraisal which could run from $350 to $600. The proprietary products have a no origination fee option.

Can I refinance my current Reverse Mortgage?
Yes. In many cases you can receive more money due to the fact that your house has appreciated and you will be a couple years older. If interest rates drop then it is almost a guarantee that you will qualify for more money.

Are Reverse Mortgages safe?
YES! All Reverse Mortgages are "non-recourse" loans which means you will never owe more than your house is worth. These loans are Government backed and have more consumer protection laws than any other mortgage product.

Do I have to get counseling to understand a Reverse Mortgage?
YES! All Reverse Mortgage products require you to meet with a counselor to make sure you understand all of the pros and cons. They will spend about an hour with you going over the alternatives and expectations of what the program can do for you.

Why does a Reverse Mortgage record two liens against my property?
The reason there are two liens recorded against you property is to protect you if your balance ever goes over what your home is worth. The first lien is from the lender and the second lien is from HUD which is the department that protects your home from you ever losing it.

Can interest rates be locked?
The amount you are eligible for is based on the rate. The rate fluctuates weekly. You will receive the better of:

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