| Common
Reverse Mortgage Questions
A reverse mortgage enables older homeowners
(62+) to convert part of the equity in their homes into tax-free
income without having to sell the home, give up title, or
take on a new monthly mortgage payment. The reverse mortgage
is aptly named because the payment stream is “reversed.”
Instead of making monthly payments to a lender, as with a
regular mortgage, a lender makes payments to you.
Here are some common questions about reverse
mortgages.
What are My Payment Options?
You can choose to receive the money from
a reverse mortgage all at once as a lump sum, fixed monthly
payments (for up to life), 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.
How Much Money Will I Get?
The amount of money you get from a reverse
mortgage depends upon your age (or age of youngest borrower
in the case of couples), appraised home value, current interest
rates, and 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, manufactured homes (built after June 1976), condominiums,
and townhouses. In general, co-ops are not allowed. Only the
Financial Freedom "Cash Account" program is available
on co-ops in New York City.
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, retire existing debts, buy a new car or take
a "dream" vacation, cover property taxes, and prevent
foreclosure.
Are There Any Special Requirements to
Get a Reverse Mortgage?
As long as you own a home, are at least 62,
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 mortgage must be paid off. You can pay off the existing
mortgage with the reverse mortgage, or any other savings.
For example, let's say you owe $100,000 on
an existing mortgage. Based on your age, home value, and interest
rates, you qualify for $125,000 under the reverse mortgage
program. Under this scenario, you will be able to pay off
ALL the existing mortgage and still have $25,000 left over
to use as you wish.
If, however, you only qualify for 85,000.
then you would need to come up with $15,000 from your savings
to get the reverse mortgage. Even then, all the money from
the reverse mortgage will have been used to pay off the existing
mortgage. On the other hand, you won't have a monthly mortgage
payment.
Will a Reverse Mortgage affect my eligibility
to access Government assistance programs?
A Reverse Mortgage
does not impact your Social Security or Medicare Benefits.
SSI and Medicaid (Medical in California) are treated differently
however.
These are needs based Gov’t programs
that have specific guidelines for qualification. The Medi-Cal
landscape is evolving due to the Deficit Reduction Act (DRA)
which is in the process of being implemented in the individual
states, and planning information you received in the past
may no longer be appropriate. Please consult with your Medi-cal
Provider or better yet an Elder Law Attorney so that you may
fully understand your options.
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.
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