It can be scary: making a major decision concerning your biggest investment, a decision involving a place that means the most to you. Deciding whether or not a reverse mortgage is right for you takes considerable thought and consideration. We hope the following answers and questions help you in this endeavor.
1. What is a reverse mortgage and do I qualify?
A reverse mortgage is a unique loan that allow homeowner(s) 62 years of age and older to draw on the equity in their home, which is paid to the homeowner(s) in cash. The unique aspect of this loan is that it does not require repayment until the homeowner(s) no longer reside in the residence. Created by The U.S. Department of Housing and Urban Development (HUD), this federally insured private loan goes to help those in the senior population meet their financial needs and ease money worries for greater peace of mind.
Prior to applying for the loan, it is required that you are made aware of the terms and conditions of the loan through sources provided by HUD. Contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
2. Is my home eligible for a reverse mortgage?
Homes eligible for a reverse mortgage include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied are eligible. Condominiums must be FHA-approved; some individual condominiums units qualify under the Spot Loan program.
3. Why shouldn’t I choose a bank home equity loan instead of a reverse mortgage?
Reverse mortgages are so popular because they pay cash that does not need to be repaid as long as you remain in your home. On the other hand, attaining a home equity loan (or a second mortgage) requires you have sufficient income to cover the debt—plus, you must continue to make monthly mortgage payments. With a reverse mortgage, you do not make monthly mortgage payments and the federally insured loan protects you from foreclosure.
4. How much cash can I expect to get?
The cash you can potentially receive is based on your age, current interest rate, and the appraised home value or FHA’s mortgage limits for your area, whichever is less. For instance, an older person with a higher value home will be eligible for more than a younger person with a lower value home—at the same interest rate.
5. What happens if I outlive the loan—will I have to repay the lender?
No. If you or one of the borrowers lives in the home and continues to pay the taxes and insurance, you will not need to repay the loan.
6. Must my house be paid off for me to qualify for a reverse mortgage?
No. You do not need to pay off you home to qualify. And it is not required that you meet an income or credit criteria. Plus, you will continue to hold the title to your home.
7. Do I have to pay taxes on the cash payments I receive?
The cash you receive from a reverse mortgage is tax-free. But, since you hold the title to your home, you are still responsible for property taxes, insurance, utilities, fuel, maintenance, and other home-related expenses. Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.
8. How will this loan affect my estate and how much will be left to my heirs?
Once the last surviving borrower dies, sells your home, or no longer resides there as the primary residence, you or your estate is responsible for repayment of the money you received from the reverse mortgage, plus interest and other fees. Any remaining equity belongs to either you or your heirs. A “non-recourse” clause can prevent either you or your estate from owing more than the value of your home when the loan is repaid.
9. Should I use an estate planning service to find a reverse mortgage?
HUD advises against using an estate planning service, especially any service that requests a lender referral fee, to procure a reverse mortgage. HUD provides this information free of charge and can direct you to HUD-approved housing counseling agencies that offer referrals to a list of HUD-approved lenders and additional services for free or at a minimal cost. Find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll-free.
10. How do I receive my payments?
Reverse mortgage payments can be received in one of five ways:
- Tenure: equal monthly payments
- Term: equal monthly payments for a fixed period of months as decided by the borrower
- Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s)
- Modified Tenure: monthly payments with a line of credit
- Modified Term: monthly payments for a fixed period of months with a line of credit