Frequently Asked Questions (FAQs)
You’ll find the answers to many common reverse mortgage questions here. Need to know more? Contact us today. We’re happy to help.
What is a reverse mortgage?
A reverse mortgage is a home-secured loan that’s exclusively for homeowners and homebuyers age 62 and older. It allows borrowers to convert some of the equity in their home into income-tax-free funds. (Not tax advice, consult a tax professional.) There are different loan products to choose from that offer you options on what interest rate you are charged, how much money you can access, and how you receive your payments. Unlike a regular “forward” mortgage or traditional 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, in order for the loan to remain in good standing the borrower must also keep up with property-related taxes, insurance and upkeep.
What is a Home Equity Conversion Mortgage (HECM)?
A HECM is a reverse mortgage loan that's insured by the Federal Housing Administration (FHA).*
What are the basic requirements for a reverse mortgage?
To be eligible for a reverse mortgage, you’ll need to meet the requirements set by the federal government:
- All borrowers must be age 62 or older (this applies to all co-owners listed on the home’s title).
- The home must be your principal residence. And it must 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.
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. A licensed RMF loan officer can help you find out if you are eligible, and will explain the flexible repayment feature that gives borrowers greater financial flexibility and control over their monthly expenses.
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
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.
How can I receive the funds from a reverse mortgage?
You have 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)
- Or a combination of the above
How is a reverse mortgage different from a traditional home equity loan or home equity line of credit?
A reverse mortgage offers certain advantages:
- With a traditional home equity loan or home equity line of credit, you must make monthly principal and interest payments on the balance while you live in the home — whereas 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. Your reverse mortgage balance, including accrued interest and fees, does not have to be repaid until you pass away or move out, as long as you meet your loan obligations (which includes keeping current with property-related taxes, insurance and upkeep).
- If part of your loan is held in a line of credit upon which you may draw, then the unused portion of the line of credit will grow in size each month — giving you access to more available funds as time goes on. The growth rate is equal to the sum of the interest rate plus the annual mortgage insurance premium rate being charged on your loan.
- And the lender cannot “freeze” or reduce the line of credit, as long as you fulfill your loan obligations — so it will be there if and when you need it. Learn more.
Can I refinance my existing mortgage, home equity loan, or other debts with a reverse mortgage?
Yes. For many homeowners age 62 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 towards 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 the homeowner, you'll still have to pay property taxes and insurance, and keep the home in good shape.
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. One of our licensed reverse mortgage specialists can provide additional general information, but you should 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. For example: refinancing your existing mortgage(s) to improve cash flow; consolidating debts to reduce monthly bill payments; buying a home; making home renovations; funding home health care; and more.
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 age 62 and older to afford the home they want, while preserving more of their savings. Learn more.
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. We will let you know exactly what costs are involved.
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.
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 (i.e., passes away, moves out, or vacates the property for more than 12 months) due to mental or physical illness.
- 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.
What if one of the co-borrowers passes away or must move out for health reasons?
The other borrower continues to own and live in the home — and enjoy all the benefits of their reverse mortgage.
Contact me today for answers to all your questions.
Stephen R. Pepe
HECM Loan Specialist, NMLS #485943
Call 508-282-6329 | email@example.com