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| Reverse Mortgage |
What is it, will it help me, am I eligible, and are there risks? These are all questions that
arise when someone brings up the topic of reverse mortgages. Since your home is probably
your largest investment it is important that you know the facts before you make a decision.
First, reverse mortgages are not a new idea. They were first introduced in 1989 by the U.S.
Department of Housing and Urban Development. Their goal was to give older Americans a
safe plan for greater financial security. AARP and others have continued to petition
congress for increases in the “cap” on reverse mortgages as well as educate seniors on
this opportunity.
WHAT IS A REVERSE MORTGAGE?
A reverse mortgage is a special type of loan against your homestead property that you do
NOT have to pay back as long as you live there. There are three basic ways to “cash out”
– the money can be paid to you all at once, you can receive monthly payments, or you can
specify times and amounts to be paid to you i.e. a credit line. You may also combine any of
these options. Unlike traditional loans, there is no repayment of the loan required except
upon the death of the homeowner, the sale of the home, or the homeowner permanently
moves to a new home.
WHAT IS THE DIFFERENCE BETWEEN A REVERSE MORTGAGE AND AN EQUITY
LINE?
With a traditional bank loan, of any type, you must have a sufficient income verses debt
ratio to qualify for the loan and you are required to make monthly payments on any amount
withdrawn. The reverse mortgage pays YOU, and there is no income verification.
AM I ELIGIBLE?
The first criteria is to be 62 years of age. This applies to every homeowner. You must own
your home “free and clear” or have a low mortgage balance that can be paid off at closing
with the proceeds. The home you are applying for must be your homestead property.
IS MY HOME ELIGIBLE?
Single family one-unit dwellings are eligible for all reverse mortgage programs. Some
programs accept 2-4 unit owner-occupied dwellings, along with some condominiums,
planned unit developments, and manufactured homes. Mobile homes and cooperatives are
generally NOT eligible.
HOW DO REVERSE MORTGAGES WORK?
Reverse mortgages are unique in that there is no repayment as long as you live in your
home. Since there is no monthly payment you will still be responsible for paying your
property taxes and insurance.
The loan becomes due in full, including interest and other charges, when the last living
borrower passes away, sells the home, or permanently moves to a new home. Since there
are no monthly payments, the amount you owe grows larger over time.
Reverse mortgages have what is known as a “non-recourse” limit on the borrower’s
repayment obligation, This important consumer safeguard means that the total amount
owed by the borrower can never exceed the value of the home at the time the loan becomes
due and payable. In seeking repayment, the lender does not have recourse to anything
other than the home’s value. Even if the loan balance grows greater than the home’s future
value, the borrower’s debt is limited to the value of the home. The non-recourse feature
protects the borrower and the borrower’s estate and heirs from “deficiency judgments” that
is, from being required to pay back more than the home’s value.
HOW MUCH MONEY WILL I GET WITH A REVERSE MORTGAGE?
The amount you can borrow depends on several factors including your age, your home’s
value and location, the current interest rate, and the cost of the loan. Typically the most
money goes to those who are older, whose homes are more valuable, and whom obtained a
low interest rate. The amount of cash you can receive also depends on what reverse
mortgage program you select. Generally, most homeowners get the largest cash advances
when using the federally insured Home Equity Conversion Mortgage. (HECM) The HECM
loan often provides much greater loan advances than the other reverse mortgage programs.
WHAT ARE THE COSTS INVOLVED WITH TAKING OUT A REVERSE MORTGAGE?
Costs for any loan are going to vary depending on type of loan, general market trends, and
other factors. The typical costs associated with a reverse mortgage are no different. There
will be an appraisal fee, mortgage insurance fee, origination fee, monthly service fee, the
closing costs for the title insurance company, the recording fee for the mortgage as well as
documentary stamps and intangible tax on the mortgage. These costs are added to any
outstanding balance you may have on a prior mortgage or equity line. The costs are then
deducted from your loan advance, which means they are added to your loan balance (the
amount you owe). Interest is charged on the entire loan advance including the closing costs.
BEFORE YOU DECIDE WHETHER A REVERSE MORTGAGE IS RIGHT FOR YOU –
PLEASE TALK TO A FEDERALLY APPROVED REVERSE MORTGAGE COUNSELOR.
For more information on reverse mortgages or where to find a counselor in your area please
contact:
AARP www.aarp.org/revmort or call them at 1-800-209-8085
HUD www.hud.gov or call them at 1-800-569-4287
arise when someone brings up the topic of reverse mortgages. Since your home is probably
your largest investment it is important that you know the facts before you make a decision.
First, reverse mortgages are not a new idea. They were first introduced in 1989 by the U.S.
Department of Housing and Urban Development. Their goal was to give older Americans a
safe plan for greater financial security. AARP and others have continued to petition
congress for increases in the “cap” on reverse mortgages as well as educate seniors on
this opportunity.
WHAT IS A REVERSE MORTGAGE?
A reverse mortgage is a special type of loan against your homestead property that you do
NOT have to pay back as long as you live there. There are three basic ways to “cash out”
– the money can be paid to you all at once, you can receive monthly payments, or you can
specify times and amounts to be paid to you i.e. a credit line. You may also combine any of
these options. Unlike traditional loans, there is no repayment of the loan required except
upon the death of the homeowner, the sale of the home, or the homeowner permanently
moves to a new home.
WHAT IS THE DIFFERENCE BETWEEN A REVERSE MORTGAGE AND AN EQUITY
LINE?
With a traditional bank loan, of any type, you must have a sufficient income verses debt
ratio to qualify for the loan and you are required to make monthly payments on any amount
withdrawn. The reverse mortgage pays YOU, and there is no income verification.
AM I ELIGIBLE?
The first criteria is to be 62 years of age. This applies to every homeowner. You must own
your home “free and clear” or have a low mortgage balance that can be paid off at closing
with the proceeds. The home you are applying for must be your homestead property.
IS MY HOME ELIGIBLE?
Single family one-unit dwellings are eligible for all reverse mortgage programs. Some
programs accept 2-4 unit owner-occupied dwellings, along with some condominiums,
planned unit developments, and manufactured homes. Mobile homes and cooperatives are
generally NOT eligible.
HOW DO REVERSE MORTGAGES WORK?
Reverse mortgages are unique in that there is no repayment as long as you live in your
home. Since there is no monthly payment you will still be responsible for paying your
property taxes and insurance.
The loan becomes due in full, including interest and other charges, when the last living
borrower passes away, sells the home, or permanently moves to a new home. Since there
are no monthly payments, the amount you owe grows larger over time.
Reverse mortgages have what is known as a “non-recourse” limit on the borrower’s
repayment obligation, This important consumer safeguard means that the total amount
owed by the borrower can never exceed the value of the home at the time the loan becomes
due and payable. In seeking repayment, the lender does not have recourse to anything
other than the home’s value. Even if the loan balance grows greater than the home’s future
value, the borrower’s debt is limited to the value of the home. The non-recourse feature
protects the borrower and the borrower’s estate and heirs from “deficiency judgments” that
is, from being required to pay back more than the home’s value.
HOW MUCH MONEY WILL I GET WITH A REVERSE MORTGAGE?
The amount you can borrow depends on several factors including your age, your home’s
value and location, the current interest rate, and the cost of the loan. Typically the most
money goes to those who are older, whose homes are more valuable, and whom obtained a
low interest rate. The amount of cash you can receive also depends on what reverse
mortgage program you select. Generally, most homeowners get the largest cash advances
when using the federally insured Home Equity Conversion Mortgage. (HECM) The HECM
loan often provides much greater loan advances than the other reverse mortgage programs.
WHAT ARE THE COSTS INVOLVED WITH TAKING OUT A REVERSE MORTGAGE?
Costs for any loan are going to vary depending on type of loan, general market trends, and
other factors. The typical costs associated with a reverse mortgage are no different. There
will be an appraisal fee, mortgage insurance fee, origination fee, monthly service fee, the
closing costs for the title insurance company, the recording fee for the mortgage as well as
documentary stamps and intangible tax on the mortgage. These costs are added to any
outstanding balance you may have on a prior mortgage or equity line. The costs are then
deducted from your loan advance, which means they are added to your loan balance (the
amount you owe). Interest is charged on the entire loan advance including the closing costs.
BEFORE YOU DECIDE WHETHER A REVERSE MORTGAGE IS RIGHT FOR YOU –
PLEASE TALK TO A FEDERALLY APPROVED REVERSE MORTGAGE COUNSELOR.
For more information on reverse mortgages or where to find a counselor in your area please
contact:
AARP www.aarp.org/revmort or call them at 1-800-209-8085
HUD www.hud.gov or call them at 1-800-569-4287