Reverse Mortgage Questions and Answers
Reverse Mortgage Questions and Answers – A reverse mortgage is a government insured program for seniors over 62. Qualified homeowners can receive tax free money that ranges from approximately 40% to 75% of your homes value. You do not have to make repayment as long as you live in the home. When the last surviving spouse dies or permanently moves from the home the loan plus interest is repaid. Government insurance guarantees the loan balance will not exceed the value of your home.
Title remains with the homeowner. You can use the funds for any purpose. The money can be taken as a lump sum, monthly payments to you, or a combination of cash and income. There is no requirement for good credit and theres no income requirement to qualify. If you have an existing mortgage it can be paid off, eliminating your monthly mortgage payment. This is possible if your qualify for an amount equal or greater than your current loan.
Common Questions and Answers
What is the general purpose of a reverse mortgage?
A reverse mortgage allows you to make use of your home equity during your lifetime.
How much are the payments on a reverse mortgage?
There are no monthly payments to make.
Is there income tax due on the reverse mortgage amount?
After a reverse mortgage does the consumer still need to pay property taxes?
What happens if I decide to sell my home after getting a reverse mortgage?
A reverse mortgage is best for those that intend to stay in their home for a significant time. If you do sell your home, the mortgage amount is paid at closing and you keep any equity.
What is the federal government’s involvement in reverse mortgages?
As a result of AARP lobbying efforts, the U.S. government established the reverse mortgage program for seniors in 1989. HUD set up the program to address the needs of seniors that can benefit by getting cash from their home equity. The government provides regulation and safeguards for this program. For example there is a cap on fees and expenses for reverse mortgages. HUD also requires counseling by an approved independent source to make sure the program is right for the consumer. This is provided by at no cost and usually takes 45 to 60 minutes.
Will reverse mortgage income affect my Medicare or Social Security benefits?
Can another lender give me a better finance rate or a larger cash-out ammount?
No, the finance rate and cash out ammounts are regulated by HUD. We will get you the largest cash out (or monthly income) possible.
Are there any restrictions on what the reverse mortgage money can be used for?
No, it is your money to use for whatever you wish.
How much cash can I get from a reverse mortgage? How long does it take to get the loan?
It depends on your age, the value of your home, which plan you select, and the current interest rate. Generally it is about 40% to 75% of your homes appraised value.
REPAYMENT AND COSTS
There are no monthly payments to be made with a reverse mortgage. The lender pays funds to the borrower and this is a reverse of a forward mortgage. The loan is not due and payable until the borrower no longer lives at the home as a primary residence. The loan is typically paid from the estate of the borrower.
- Interest is paid on a reverse mortgage when it terminates. The rate is variable and differs depending on the type of program selected. The most popular program has a rate 1 1/2% above the 1 year t-bill. For example if the t-bill is 5% the program rate would be 6 1/2%.
- A mortgage insurance premium is paid to the FHA. At the end of the loan if the ballance is greater than the home value, the insurance will pay the difference. This premium is about 1/3 of the total reverse mortgage costs.
- A loan origination fee is paid to the company that helps you obtain the reverse mortgage. This fee is regulated by HUD and is typically $2,000 or more depending on the loan size.
- Other closing costs may include appraisal, document preperation costs, attorney fees, title company fees, and other costs. The apprasial fee is the only cost paid out of pocket and usually is about $325.
- A Mortgage representative can provide a detailed accounting of costs for your reverse mortgage.
Lots of questions come our way about specifics of a reverse mortgage. Reverse mortgages for seniors is committed to giving you all the facts, so you can make your decision in an informed manner. A list of the more common questions asked are listed below.
1. Can I do a reverse mortgage if I owe nothing on my home?
This may sound obvious, but absolutely. This allows for more available cash to take care of any non mortgage obligations you may have.
Also Read: What is a Reverse Mortgage?
If you do owe something on your home, you can still do the reverse mortgage. The first thing to pay off is the existing mortgage on your home. Then if you have any liens or second mortgages on your home, we will pay those off. After that, any remaining available equity will be used as a credit line, monthly income, or a lump sum disbursement. You get to choose.
2. Can I do a reverse mortgage if I am behind on my taxes?
This is a great reason to use a reverse mortgage. It will allow you to be caught up on any past due bills and get those creditors off your back.
3. Do I have to give up the title to my home?
You will use your home as collateral for the new loan. You do not give up your home. You retain all the rights to refinance or sell, and the remaining equity is always yours.
4. What happens if I use up all my equity?
It takes a long time to “use up” your equity. If your home appreciates at all, the time frame to use up your equity is usually 20-30 years. You can have an amortization schedule show you the expected time frame. In the event you do use all your equity up, the lender cannot force you out of your home. The note is written to allow you to not repay the loan until you no longer live there as your primary residence.
5. Can I be kicked out of my home at any time?
Technically, yes. If you do not pay your taxes and insurance, you can be foreclosed on.. This is your only concern with your reverse mortgage. Since you are not making payments, the lender can never give you the boot. If you are having difficulties paying the taxes and you live in US, consider using the tax deferral program available to you. It can help quite a bit if used correctly.
6. When do I have to repay the loan?
The notes are written to be repaid on the 150th birthday of the youngest borrower. The triggering event for most of us though will be when none of the borrowers live in the home as their primary residence. This could mean passing away, moving to a retirement home, or just because you want to sell. As stated before, any remaining equity will go to the property owner. Whether it is you or your heirs.
7. My home is a manufactured home, can I do a reverse mortgage?
As long as your home is a post HUD (built in June of ’76 or newer), doublewide (or bigger) manufactured home on real estate (owned land), you could qualify. In theory, you can do a manufactured home on leased land, in a park for example, but the conditions are pretty tough to meet. As a side note, manufactured homes in a park, where you also own the land, is acceptable.
8. Can I defer my property taxes?
Yes you may. You are allowed to defer your property taxes. If they are already deferred, you will need to bring them current. After completing your new loan, you may again defer the taxes.
9. How does the money we receive affect our taxes?
It doesn’t. The proceeds that you recieve are not taxable. They also do not have any impact on Medicare or Social Security. Do realize though, that the proceeds could have an effect on Medicaid or SSI. If you are on Medicaid, consider calling for a free HECM consultation.