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Reverse Mortgage FAQs

Reverse Mortgage FAQs

 

Your reverse mortgage questions answered

You’ll find the answers to many common reverse mortgage questions here. If you don’t see your question answered here, please reach out and I’ll be happy to help.

 

What is a reverse mortgage?

A reverse mortgage is a home-secured loan exclusively for homeowners and homebuyers age 55* and older. It allows borrowers to convert some of the equity in their home into income-tax-free cash.

Similar to a traditional “forward” mortgage, borrowers can choose from different loan products with options on interest rates, how much money you can access, and how you receive your payments.

Unlike a regular mortgage, home equity loan or home equity line of credit, there are no monthly principal and interest payments as long as at least one of the borrowers lives in the home as their primary residence. As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, and maintenance.

 

There are different types of reverse mortgages:

HECM Annual Adjustable Rate

HECM Annual is a reverse mortgage whose interest rate adjusts only once a year, with a “lifetime cap” to ensure that your rate will never go beyond a certain percentage over the initial rate. In addition, there’s an “interval cap” that guarantees that your interest rate cannot increase by more than a certain percentage annually. And to help give you financial flexibility, you can take your funds as a lump sum, monthly advances, a line of credit or a combination.

HECM Monthly Adjustable Rate

The interest rate on this HECM fluctuates on a monthly basis, but it also offers more options for homeowners — including a “rate cap” that guarantees that your rate will never go up more than a certain percent over the initial rate (depending on the loan options you choose). You can select a lump sum, line of credit, monthly advances or a combination. For example, you might choose to take some of your cash up front and put the rest in a line of credit, so it’s available when you need it. You only accrue interest on the money that you actually take.

HECM Fixed Rate

With an interest rate that’s established at the loan closing — and fixed for the life of the loan — you’ll always know exactly how much interest is accruing on your loan. However, with a HECM Fixed Rate, you are required to take all of your money at closing in one lump sum. This may be a desirable choice if you’re using your HECM to pay off a larger existing mortgage or cover other immediate needs.

Reverse Mortgage for Purchase

This home financing solution helps you purchase a new home that will better fit your future needs by taking out a loan on the home you are buying.

Equity Elite® Reverse Mortgage

Equity Elite® is an innovative loan product available exclusively from Reverse Mortgage Funding LLC (RMF) as the lender. If you’re age 55* or older and own or are planning to buy a house or condo, Equity Elite® lets you tap into more of your home’s equity, sooner rather than later. Learn more

 

What are the basic requirements for a reverse mortgage?

To be eligible for a federally insured Home Equity Conversion Mortgage (HECM), more commonly known as a reverse mortgage, you’ll need to meet the requirements set by the federal government:

  • All borrowers must be 55* or older (this applies to all co-owners listed on the home’s title).
  • The home must be your principal residence, and meet standards set by the United States Department of Housing and Urban Development (HUD)† on property type and condition. You may be able to use your reverse mortgage to pay for any required repairs in order to meet these standards.
  • Eligible property types include single-family homes, 2-to-4-unit properties, manufactured homes meeting certain criteria, condominiums that are approved by the Federal Housing Administration (FHA), and townhouses. Co-ops do not qualify.

Click here to see if you’re eligible for a reverse mortgage loan.

 

How does the reverse mortgage process work?

The process to obtain a reverse mortgage is simple, but it’s helpful to know what you can expect.

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Step 1: Preparation

The road to your reverse mortgage starts with education. You may have heard a lot from friends and family or even from TV about reverse mortgages, but it’s important to weigh all the pros and cons for yourself. An experienced loan specialist (like me!) can provide you with the information you need to help decide if a reverse mortgage solution is the right choice for you.


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Step 2: On the road

If you decide to move forward, you’ll choose a lender and submit your application to them. The application includes some personal information, and a financial assessment will be conducted to make sure you’ll be able to afford ongoing expenses like property taxes, insurance and home maintenance.

You’ll meet with an independent reverse mortgage counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD), to make sure you understand all aspects of the loan.


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Step 3: Rounding the bend

Your home will be appraised by an independent appraiser, to determine the value. Then the appraisal and loan package will be sent to an underwriter for review and approval. The underwriter will make sure all the information in the package is correct, complete, and compliant with all applicable laws and regulations.


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Step 4: Almost there!

After your loan application is approved, you will sign your closing documents with a title officer or attorney (depending on your state’s requirements).


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Step 5: Arrival

Three days after closing, the loan funds are disbursed, and you can access them according to the payment plan you selected. Your loan funds will first be used to pay off any existing mortgage on your home, a new lien (the reverse mortgage) is placed on the home, and you can use the remaining funds from your reverse mortgage however you choose.


 

 

What if I still owe money on a first or second mortgage?

You may still be eligible. In fact, many people refinance their existing mortgage(s) with a reverse mortgage in order to substantially reduce their monthly bills. Proceeds from your reverse mortgage would first be used to pay off any existing mortgage(s). This means the balance of your existing mortgage(s) will be added to the balance of your reverse mortgage.

 

How much money can I get?

The specific amount depends on several factors, including:

  • Your age
  • The type of reverse mortgage you select
  • Current interest rates
  • Appraised value of your home
  • Federal Housing Administration (FHA) lending limits
  • Appraised value of your home

HUD also regulates the amount of money that can be withdrawn during the first year of your reverse mortgage. This is to help preserve your home equity for a longer period of time.

Click here to discover how much you may qualify for.

 

How can I receive the funds from a reverse mortgage?

One of the major benefits of a reverse mortgage is its flexibility, including a number of choices for how you receive your funds:

  • Lump sum
  • Monthly advances (either for a fixed length of time, or as long as you live in the home)
  • Line of credit (take funds when you need them)

You can also choose a combination of methods|| — whatever best meets your financial needs.

 

How is a reverse mortgage different from a traditional home equity loan or home equity line of credit (HELOC)?

With a traditional home equity loan or HELOC, you must make mandatory monthly principal and interest payments on the balance while you live in the home. A reverse mortgage has a flexible repayment feature. You can pay as much or as little as you like each month toward principal and interest, or make no monthly loan payment at all.

As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, and maintenance.

Check out this side-by-side comparison chart to learn more.

 

Can I refinance my existing mortgage, home equity loan, or other debts with a reverse mortgage?

Yes. For many homeowners 55* and older who are looking to refinance their mortgage(s) or consolidate debt to reduce their monthly bills, a reverse mortgage can be a more suitable solution. That’s because a reverse mortgage has a flexible repayment feature, which puts you in control of how much you pay toward your principal and interest each month. For as long as you live in the home, you can choose to pay as much as little as you like, or make no monthly loan payment at all — freeing up money for other purposes. As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, and maintenance.

 

Will I be taxed on my reverse mortgage proceeds?

Typically, reverse mortgage loan funds are not subject to income tax. Contact your tax advisor for additional details.

 

Will a reverse mortgage affect my government benefits?

The funds from a reverse mortgage generally do not affect regular Social Security or Medicare benefits. However, needs-based benefits, such as Medicaid and Supplemental Security Income (SSI), may be impacted. Please contact a financial professional or government benefits specialist about your particular situation.

 

How can I use the proceeds?

Use the proceeds for the things you need and want. Some examples of how borrowers in California are using funds include:

  • Refinancing an existing mortgage(s) to improve cash flow
  • Consolidating debts to reduce monthly bill payments
  • Buying a home
  • Making home renovations
  • Funding home health care

 

Can I use a reverse mortgage to purchase a home?

Yes, with the HECM (Home Equity Conversion Mortgage) For Purchase loan, qualified borrowers can use their loan proceeds to buy a home that better suits their needs and lifestyle. It’s a home financing option that can make it easier for buyers 55* and older to afford the home they want, while preserving more of their savings.

 

Are interest rates fixed or variable?

Reverse mortgages are available with either fixed or variable rates. Borrowers who elect a fixed-rate loan will receive their funds as a single disbursement lump sum. A lump sum disbursement is also available with an adjustable rate. A line of credit and monthly advances have an adjustable rate.

 

Can a reverse mortgage be refinanced?

Yes, refinancing is possible. This option may be to your advantage if your home increases in value, making more funds available.

 

Will I have to pay any fees?

With the exception of a fee for government-required reverse mortgage counseling, most of the fees associated with a reverse mortgage can be financed with your loan, so there’s no immediate out-of-pocket cost. The costs are added to the loan amount (“principal”) and paid along with the accrued interest when the loan becomes due. Depending on the loan option you choose, these fees may include an origination fee, closing costs, a mortgage insurance premium (required for HECM loans) and a monthly servicing fee.

 

What has to be repaid when the loan becomes due?

You’ll repay the loan balance, any fees that have been added, and the accrued interest. Homeowners (or their heirs) usually choose to do this through the sale of the home or other assets. Repaying the loan by refinancing through a conventional mortgage is also an option. The non-recourse feature of the loan ensures that you’ll never owe more than the home is worth when the loan is repaid.

 

When will the principal and interest charges become due?

The loan must be paid in full when one of the following occurs:

  • A “maturity event” — the loan becomes due and payable when the home is sold, or the borrower or qualified non-borrowing spouse no longer occupies the home as their principal residence (e.g., passes away, moves out)
  • You fail to pay property taxes or homeowners insurance.
  • You let the property deteriorate beyond what is considered reasonable wear and tear, and do not correct the problem.

 

 

*Borrowers who elect a fixed rate loan will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages.
This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.
Not tax advice, consult a tax professional.
||Consult a financial professional to determine the potential financial implications of obtaining a reverse mortgage loan.
Equity Elite® Reverse Mortgage (“Equity Elite®”) is Reverse Mortgage Funding LLC’s proprietary loan program, and it is not affiliated with the Home Equity Conversion Mortgage (HECM) loan program, which is insured by FHA. Equity Elite ® is available to qualified borrowers who also may be eligible for FHA’s HECM program or are seeking loan proceeds that are higher than FHA’s HECM program limit. Equity Elite ® currently is available only for eligible properties in select states. Please contact your loan originator to see if it is currently available in your state. Upon a maturity event, any non-borrowing individuals with an ownership interest in the property, including non-borrowing spouses, will have a short period of time (for example, 30 days from a due and payable letter or an alternate time specified by the loan servicer if extensions are available under the circumstances) to purchase the property from the estate or, if the non-borrower inherits the property, pay the loan in full using any sources of funds available to them. Any non-borrowing individual, including a non-borrowing spouse, should have a plan to pay off an Equity Elite reverse mortgage upon the borrower’s death or any other maturity event. If the non-borrower is unwilling or unable to purchase the property or pay the loan in full, there is no protection for the non-borrower (including a non-borrower spouse) to maintain an interest in the home or to continue residing in the home past the maturity event and the non-borrower may be evicted upon foreclosure. The FHA HECM program has protections in place for certain non-borrowing parties, so a reverse mortgage applicant with certain non-borrowing parties should strongly consider an FHA-insured HECM loan (see HECM guidelines or ask an RMF representative for details). Under the Equity Elite ® reverse mortgage loan program, a maturity and/or default event occurs when the last surviving borrower no longer lives in the home as his or her primary residence for at least 12 months, the property charges (including taxes, insurance, or any other property charges) are not paid, required repairs are not completed or the property is not maintained, or any other maturity and/or default event, as specified in the Security Instrument, occurs.