Common Questions about Reverse Mortgages

What is a Reverse Mortgage?

A Home Equity Conversion Mortgage (HECM), also known as a Reverse Mortgage, is a government-insured, FHA loan made available to homeowners 62 or older. The program allows homeowners to borrow from a portion of their home’s equity. A Reverse Mortgage can provide you the unique opportunity to “age in place” at your home without having the usual monthly loan payments. (Homeowners must continue to pay their taxes and insurance)

What types of homes are eligible?

A single-family home, multi-family home (where one unit serves as your primary residence), or HUD-approved condo are all eligible for a Reverse Mortgage.

What if I have a mortgage already?

That’s fine! In fact, the proceeds from the Reverse Mortgage will first be used to pay off the existing mortgage. Any additional loan proceeds will be available to the senior to be used as he or she wishes.

Could I lose my home?

Maintain your property to minimum FHA standards and pay your taxes and insurance, and you can continue to live in your home until it is sold or you no longer occupy it as your primary residence.

Will the senior lose his or her government benefits?

Your Medicare, Social Security and pension benefits will not be impacted. However, income awards such a Supplemental Security Income (SSI) may be affected.  Please consult with a financial adviser prior to obtaining your loan.

How will a Reverse Mortgage impact the senior's children?

When the last borrower passes away, your heirs may choose to sell the home to repay the loan. Alternatively, your heirs may choose to keep the home as an inheritance, and repay the loan another way, such as refinancing into a traditional mortgage.  Either way, your heirs will inherit all the remaining equity of the home after the loan is repaid.

Does a Reverse Mortgage have any drawbacks?

The trade-off of a Reverse Mortgage is that you may owe more over time because you’re not making payments. Interest will increase your balance during the loan term. However, the benefit of getting cash from your home equity now when you need it can outweigh this drawback.

How is a Reverse Mortgage repaid?

The Reverse Mortgage loan is only due when you sell, move out of the home, or pass away. Mortgage insurance protects you if the home is worth less than your loan balance. You will never have to pay more than what your home is worth.

How much money can I receive?

The amount varies, and depends on the following factors:

  • Age of the youngest borrower or eligible non-borrowing spouse;
  • Current interest rate; and
  • The appraised value of the home or the HECM FHA Loan Limit of $625,500, whichever is less

 

What if I change my mind after I go to closing?

By law, you have three (3) calendar days to change your mind and cancel the loan. This is called a three-day right of rescission. The right of rescission is not applicable to Reverse Mortgages which are used to purchase a home.

How do I receive the Reverse Mortgage funds?

For fixed interest rate mortgages, you will receive a single lump sum disbursement.

For adjustable interest rate mortgages, you can select one of the following payment plans:

  • Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence
  • Term – equal monthly payments for a fixed period of months as selected by the borrower
  • Line of Credit – unscheduled payments or installments at times and in an amount of your choosing until the line of credit is exhausted
  • Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home
  • Modified Term – combination of line of credit plus monthly payments for a fixed period of months as selected by the borrower

*Reverse mortgages increase the principal mortgage amount and decrease home equity (it is a negative amortization loan). Borrowers are responsible for paying property taxes and homeowner’s insurance (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable when the last borrower, or eligible non-borrowing spouse, dies, sells the home, permanently moves out, defaults on taxes or insurance payments, or does not otherwise comply with loan terms. These materials are not from HUD or FHA and were not approved by HUD or government agency. See Department of Housing and Urban Development’s Mortgagee Letter 2014-10 for more information with regard to FHA requirements for advertising reverse mortgages. Information is provided as an advertisement and is not a guarantee of lending.

Additional Information