A Reverse Mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. A Reverse Mortgage works much like traditional mortgages, only in reverse. Instead of making a monthly payment to your lender, the lender pays you. You do not make any payments on your reverse equity loan when you are in it. Funds obtained from a Reverse Mortgage may be used for any purpose such as home improvement, vacation, a new car, or savings.
To qualify for an Reverse Mortgage, you must be at least 62 years old and own your home. There are no income or credit requirements for a reverse mortgage. Qualifying is based solely on your age and equity in your home. If you need to eliminate your current mortgage payment, take cash out of your home, pay off other existing debt, or all three, and would like to be able to do so without having a mortgage payment, then a reverse mortgage may be just what you need.
The Reverse Mortgage funds may be paid to you in a lump sum, in monthly advances, through a line-of-credit, or in a combination of the three, depending on the type of Reverse Mortgage. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate.
Because you retain title to your home with a Reverse Mortgage, you also remain responsible for taxes, repairs, and maintenance. Depending on the plan you select, your Reverse Mortgage becomes due either when you permanently move, sell your home, die, or reach the end of the pre-selected loan term. The lender does not take title to your home when you die, but your heirs must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage (if the heirs are eligible) or by using the proceeds from the sale of your home. Again, the bank does not own your home, and has no desire to do so. Your home is left to your heirs, not the bank.
Reverse Mortgage Counseling
All reverse mortgages require that the homeowner complete a HUD approved reverse mortgage counseling program prior to applying for a reverse mortgage. The counseling programs can often been done over the phone, and at little, or sometimes even no, cost. These programs are to ensure that the homeowner is fully aware of all of the aspects of the reverse mortgage. Our reverse mortgage speciailists can provide you with a list of HUD approved companies that offer the counseling in your area.
Reverse Mortgage Benefits
- No payments are required as long as you live in your home.
- No income or credit qualifications. Qualify even if you are late on your current mortgage.
- Income received from your Reverse Mortgage is usually tax-exempt (consult your tax advisor) and does not affect regular Social Security or Medicare benefits, but may affect eligibility for other types of government assistance.
- You retain ownership of your home.
- You can use the proceeds to pay off an existing mortgage and eliminate your monthly mortgage payments.
- Reverse Mortgages provide you with a source of income that can be used to improve your standard of living and maintain your independence.
Reverse Mortgage Myths
- I can’t get a reverse mortgage if I have a mortgage currently – If your house isn’t paid off, then the proceeds from the reverse mortgage must first be used to pay off the existing loan.
- If I take a reverse mortgage, the bank will own my home – You retain title and ownership in your home, and can choose to sell the home at any time.
- There are restrictions on how I use the proceeds from a reverse mortgage – The proceeds can be used for virtually any purpose.
- Only low-income seniors get reverse mortgages – Although some seniors have a greater need for the monthly payments or lump sum cash than others, most seniors prefer to be free of their monthly mortgage payments.
- If I outlive my life expectancy, the lender will evict me – There is no time limit on how long you can live in your home. Since you still own the property, you cannot be evicted as long as you continue to pay the property taxes and homeowner’s insurance.
- A Reverse Mortgage will affect my government benefits – A reverse mortgage does not generally affect Social Security benefits. We recommend speaking with your financial advisor or federal benefits administrator regarding any impact on Medicaid eligibility.
- My children will be responsible for the repayment of the loan – Reverse Mortgages are non-recourse loans That means that your heirs have the option of repaying the loan and maintaining ownership in the property, or not. They will not be responsible for any portion of the outstanding reverse mortgage balance.
- I won’t qualify due to my limited income – There are limited income restrictions on reverse mortgages. Most seniors not eligible for traditional mortgages do qualify for a reverse mortgage.
- I won’t qualify due to my credit – There are limited credit qualifications. You may qualify for a reverse even when you don;t for a traditional mortgage.