Considering a reverse mortgage?
On this page are a lot of common questions we encounter about reverse mortgages.
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Common Questions about Reverse Mortgages
What is a reverse mortgage? A national, federally insured program available to homeowners age 62 and older providing you access your home's equity without having to make a monthly mortgage repayment.
How much can I qualify for? The amount of funds available is based on the youngest spouses age and the appraised value of your home. As a rule of thumb the loan to value (LTV) offered on a reverse mortgage is 40-70% of your appraised value, depending on your age.
Does the bank take title to my home? No, you retain ownership and title that you have today. The reverse mortgage is just a loan like any other type of mortgage but with the extra ability to defer the interest charges rather than making monthly repayments. At any time you may repay the interest, refinance or sell your home without penalty.
When does the Reverse Mortgage need to be paid off? When you sell the property or no longer occupy your home as your primary residence for a period of 12 months or longer, or fail to maintain the property taxes and homeowners insurance.
What does the lender expect from me? You must pay the property taxes and the homeowners insurance and any homeowners association dues you may have. And of course, the lender expects you to continue to occupy the property.
I currently hold title in a Trust, can I keep it that way? Yes you can but the lender and title company do require that they review the trust and it must be approved.
What if I still owe on my home, do I need to own my house free and clear? You do not need to own your home free and clear to get a reverse mortgage. The proceeds can be used for any purpose, but any existing liens on the property must be paid off at closing.
Will my heirs still receive an inheritance? Often yes, after the balance of your reverse mortgage is paid off, all remaining equity will go to your heirs.
What are the Credit and Income Qualifications? There are no minimum credit score requirements to qualify for a reverse mortgage loan. However, lenders are required to complete a credit analysis focused on your last 24 month payment history. Because it is required that you maintain property taxes and your homeowners insurance as part of the ongoing agreement of the reverse mortgage lenders must also check that you meet a minimum residual income as part of the FHA financial assessment guidelines.
How do I determine if the Reverse Mortgage is the right loan for me? The reverse mortgage may not be right for everyone. There are many things to consider. With the costs of the loan and the government insurance, if you only need the loan for a very short period of time, a reverse mortgage may not be the right option for you. On the other hand, if you intend to occupy your property for a long period of time and wish to never make another payment for life while accessing your equity in the form of monthly payments, a line of credit, or both, then a reverse mortgage may be perfect for you!
How can I choose to take the reverse mortgage proceeds and are there any restrictions on what I use the funds for? This is one of the great features of the loan... you have choices!
What are the interest rates for reverse mortgages? Rates vary by program. For example, just within the HUD HECM loans you have fixed rates, monthly or annual adjustable rates. Adjustable rate programs offer more flexibility in how you may receive the proceeds available to you such as a line of credit or a monthly payment plan, where fixed interest rates are only available as a single disbursement lump sum.
Will I pay Taxes on the cash I receive? Funds received from your loan are generally considered to be nontaxable as the money received is not income earned. You should always consult your trusted tax advisor.
Is the interest added to my balance tax deductible? Only when a payment is actually applied to your loan, or when the balance is paid in full.
Can I make payments even if they are not required? Yes. While a Reverse Mortgage does not require regular scheduled monthly payments, the program does permit a borrower to make voluntary partial or full payments on the loan with no penalty.
What if I don't want to take the full amount that I qualify for? Reverse Mortgage Loans are not subject to prepayment penalties and therefore you can repay any portion of the excess proceeds you received at closing at any time to lower your balance, or you can choose a line of credit and only advance the portion of funds that you wish at closing.
What happens if the interest accrued exceeds the value of our home? Since the loan is insured by the government, you are guaranteed that you and your heirs will never have to pay more than the property is worth in a bona-fide sale at time of maturity on the loan.
What is a Counseling Certificate? A Reverse Mortgage Counseling Certificate is the certificate that you receive once you have attended a counseling session conducted by a certified reverse mortgage counselor. Once you have completed the counseling, you will receive a certificate which the lender will require to proceed with your loan. The certificate ensures that you have an understanding of reverse mortgage loans in general and your program specifically.
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