Frequently Asked Questions
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Reverse Mortgage FAQs
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.
After speaking with a reverse mortgage loan officer, and 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. Your reverse mortgage specialist will provide you with a list of counselors or you can 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. Condominiums must be FHA-approved.
3. Why shouldn’t I choose a bank home equity loan instead of a reverse mortgage?
Reverse mortgages are so popular because they provide 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 (you must continue to make payments for taxes, HOI, flood insurance, and condo/HOA fees, if applicable).
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?
The loan must be paid off or refinanced to clear the lien.
6. Must my house be paid off for me to qualify for a reverse mortgage?
No. You do not need to pay off your home to qualify, but the existing lien must be paid from loan proceeds. 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 not subject to individual income taxation. 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.*
*Information is not considered tax advice. Please consult your accountant for more information.
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. How do I receive my payments?
Reverse mortgage payments can be received in one of six ways or a combination of these options, check with our reverse mortgage specialist for the options that are available to you.
- Lump Sum Cash Payment: paid to borrower approximately 4 business days after closing;
- Tenure: equal monthly payments;
- Term: equal monthly payments for a fixed period of months as decided by the borrower(s);
- 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.
10. What costs are associated with a reverse mortgage?
The costs of a “forward” loan are very similar to a reverse loan. For example, an origination fee may be paid to the broker/lender, a MIP (mortgage insurance premium) is paid to HUD on the Home Equity Conversion Mortgage (HECM), an appraisal fee, a flood certification fee, a doc prep fee, title and settlement fees, and other standard closing costs.
11. Is it required that I receive counseling before getting a reverse mortgage?
Yes. Counseling is required to protect borrowers from receiving incorrect information about reverse mortgages. The lender must be in receipt of the counseling certificate before they can close the loan. To locate a reverse mortgage counselor near you, your loan officer will provide a list of counselors or you can contact your local HUD office.
12. Do I get taxed on the money I receive from my reverse mortgage?
The equity in your home is considered your money and not additional income. All the funds from a reverse mortgage are tax free. (Borrowers should seek professional tax advice regarding reverse mortgage proceeds.)
13. Do I have to pay any fees to the reverse mortgage lender during the course of my loan?
A reverse mortgage was created so borrowers don’t have to pay fees during the course of the loan. However, in some cases, there is a monthly servicing fee that is associated with reverse mortgages. For more information on the service set-aside, please talk to your loan officer.