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A Reverse Mortgage Could Change Your Life.

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Here’s How It Works

If you’re 62 or older and own a home, you can cash out the equity from your home and use this money to pay for retirement. You can do this using a Home Equity Conversion Mortgage (also known as a “Reverse Mortgage”) that is
backed and protected by the U.S. Government​.

Boomers are sitting on mountains of home equity. According to a recent study, American Seniors have over​ $6.8 Trillion in home equity.​ American Senior Income helps you turn this equity into cash. You can use this money to pay off debt, support your family,
or go on your dream vacation. You don’t have to move or sell your home, you can just
enjoy your money with no monthly mortgage payments.

Note: You can receive a lump sum, line of credit, or monthly payments, and spend your money on anything you want.

It’s Called a Reverse Mortgage

A reverse mortgage, also known as the home equity conversion mortgage (HECM) in the United States, is a financial tool for homeowners 62 or older who have accumulated home equity and want to use this to supplement retirement income. Unlike a conventional forward mortgage, there are no monthly mortgage payments to make. Borrowers are still responsible for paying taxes and insurance on the property and must continue to use the property as a primary residence for the life of the loan.

How Reverse Mortgages Work

  • A reverse mortgage is a loan for seniors age 62 and older.
  • It allows homeowners to convert their home equity into cash.
  • Homeowners can eliminate monthly mortgage payments.
  • Proceeds can be used to supplement income or pay expenses.
  • Homeowners can receive a lump sum, line of credit, or monthly payments.
  • Borrowers must repay their loans when they sell their home or die.

Why Reverse Mortgages Are Safe

A reverse mortgage is a special type of home loan for seniors age 62 and older. It allows homeowners to convert their home equity into cash with no monthly mortgage payments, and defer payment of the loan until they die, sell, or move out of the home.

The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program. HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA), and they are​ a safe plan that can give older Americans greater financial security.

Many seniors use a ​HECM reverse mortgage loan​ to supplement Social Security, meet unexpected medical expenses, make home improvements, and more. ​Proceeds can be received as a line of credit, lump sum, or monthly payments. Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their existing mortgage and eliminate monthly mortgage payments. Borrowers are required to continue paying property taxes and insurance and maintain the home.

A reverse mortgage loan uses a home’s equity as collateral. The amount of money the borrower can receive is determined by the age of the youngest borrower, interest rates and the lesser of the home’s appraised value, sale price, and the maximum lending limit.

Typically the loan does not become due as long as you live in the home as your primary residence and continue to meet all of the loan obligations. The loan does not generally have to be repaid until six months after the last surviving homeowner moves out of the property or passes away. At that time, the estate typically sells the home to repay the balance of the reverse mortgage and the heirs receive any remaining equity.

​It’s Not a Second Mortgage​

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, reverse mortgage borrowers do not have to repay the reverse mortgage loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments

Reverse Mortgage Qualifications

To be eligible for a ​new reverse mortgage​ loan, the FHA requires all borrowers on title to be 62 years or older. T​he home must be their primary residence (second homes and investment properties do not qualify). They must live in the home. And they must ​have the financial resources to pay ongoing property charges including taxes and insurance.

Borrowers must also meet financial eligibility criteria as established by HUD. If there is an existing mortgage on the home, it may be paid off with the proceeds from the reverse mortgage loan.

Most single-family homes, two-to-four unit owner-occupied dwellings or townhouses and approved condominiums and manufactured homes are eligible for a reverse mortgage loan.

If the borrower changes their mind and no longer wants the loan after it goes to closing, by law, the borrower has three calendar days to change their mind and cancel the loan.

Reverse Mortgage Proceeds

A reverse mortgage loan uses a home’s equity as collateral. The amount of money the borrower can receive is determined by the age of the youngest borrower, interest rates and the lesser of the home’s appraised value, sale price, and the maximum lending limit.

Proceeds can be received as:

  • Line of credit – draw as needed up to the maximum eligible amount
  • Lump sum – a lump sum of cash at closing
  • Tenure – monthly payments for life of loan
  • Term – monthly payments for a specific number of years

Proceeds are typically used to:

  • Receive additional income to help with living costs
  • Consolidate and pay off your debts
  • Buy a new car
  • Pay for a care facility (nursing home)
  • Repair or renovate the home
  • Help the family or grandchildren
  • Pay for a vacation

Note: The adjustable-rate HECM reverse mortgage offers all of the above payment options,
but the fixed-rate HECM only offers lump sum.

Reverse Mortgage Repayment

Borrowers must repay their loans when they sell their home or die. Under new guidelines, if the older spouse dies, the surviving spouse can remain living in the home without having to repay the reverse mortgage balance as long as they keep up with property taxes and homeowners insurance, and they maintain the home to a reasonable level.

The loan does not generally have to be repaid until six months after the last surviving homeowner moves out of the property or passes away. At that time, the estate typically sells the home to repay the balance of the reverse mortgage and the heirs receive any remaining equity. The estate is not personally liable for any additional mortgage debt if the home sells for less than the payoff amount of the reverse mortgage loan.

Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years.

However, the borrower (or the borrower's estate) is generally not required to repay any additional loan balance in excess of the value of the home.

When the reverse mortgage loan does become due, the borrower’s heirs/estate can choose to repay the reverse mortgage loan and keep the home or put the home up for sale in order to repay the loan. If the home sells for more than the balance of the reverse mortgage loan, the remaining home equity passes to the heirs. No debt is passed along to the estate or heirs. ​

A reverse mortgage loan is “non-recourse,”  meaning that if you sell the home to repay the loan, you or your heirs will never owe more  than the loan balance or the value of the property, whichever is less; and no assets other  than the home must be used to repay the debt.

Reverse Mortgage Benefits​

  • Eliminate mortgage payments
  • Cover daily living expenses
  • Pay for medical expenses
  • Help family members in need
  • Save for unexpected emergencies
  • Pay for medicine and health bills
  • Buy a new car
  • Pay off your forward mortgage
  • Use as part of a retirement plan
  • Set up transportation
  • Delay collecting Social Security
  • Eliminate high-interest debt
  • Invest in opportunities
  • Purchase health technology
  • Avoid the stress of paying bills
  • Supplement retirement income
  • Consolidate and pay debts
  • Repair or renovate your home
  • Pay for grandchildren’s education
  • Maintain reserves for downturns
  • Replace salary and maintain routine
  • Pay for a vacation
  • Pay for a nursing/care facility
  • Convert room to a caregiver facility
  • Create set-aside for taxes/insurance
  • Pay for estate plan/will/funeral costs
  • Eliminate credit card debt
  • Avoid using or selling off assets
  • Avoid selling your home
  • Stay in your home until you pass

Top 10 Facts To Know​

  • Helps seniors turn home equity into cash.
  • You can use the funds however you choose.
  • Receive lump sum, line of credit, or payments.
  • Backed and insured by the U.S. Government.
  • You never give up ownership of your home.
  • No required monthly mortgage payments.
  • You can pay off your existing mortgage.
  • No repayment as long as you live there.
  • No minimum income requirements.
  • You can leave your home to your heirs.

Top 30 Questions Seniors Ask​

  • 1. What’s a reverse mortgage?

    Short Answer: A reverse mortgage is a special type of home loan designed for seniors to withdraw the equity from their home.

    A reverse mortgage is a type of home equity loan that has been developed for homeowners who are 62 and older. It enables them to withdraw the equity in their home that they have accumulated over the years, and use these funds to pay down their mortgage, make improvements to their home, pay for medical or living expenses, help out family, or put the money away for unexpected emergencies.

    Unlike a traditional loan, there is no required monthly payment. When the funds are advanced, the borrower can choose to make mortgage payments on a monthly basis, or they can just let the interest accrue and repay the loan when they permanently leave the home after they sell their home and move out or pass away.

    Proceeds can be received as a line of credit, lump sum, or monthly payments. Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their existing mortgage and eliminate monthly mortgage payments. Borrowers are required to continue paying property taxes and insurance and maintain the home.

  • 2. Why is it called a “reverse” mortgage?

    Short Answer: It’s called a “reverse” mortgage because it operates exactly in reverse to a traditional or “forward” mortgage.

    The loan is called a reverse mortgage because the traditional mortgage payback stream is reversed. Instead of making monthly payments to a lender (as with a traditional mortgage), the lender makes payments to the borrower.

    A “reverse” mortgage is different than a traditional or “forward” mortgage in that it operates exactly in reverse. The traditional loan is a falling debt, rising equity loan while the reverse mortgage falling equity, rising debt loan. In other words, as you make payments on a traditional loan, the debt or amount you owe is reduced and therefore the equity you have in the property increases over time.

    With the reverse mortgage, you make no payments so as you draw out funds and as interest accrues on the loan, the balance grows and your equity position in the property becomes smaller.

  • 3. What is a “HECM” reverse mortgage?

    Short Answer: A “HECM” reverse mortgage is the only reverse mortgage insured by the U.S. Federal Government.

    The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender.

    The vast majority of reverse mortgages in the United States are Home Equity Conversion Mortgage (HECM — commonly pronounced “heck-um”) reverse mortgages, which are regulated and insured through the federal government by the Department of Housing and Urban Development (HUD) and the Federal Housing Authority (FHA).

    Especially since 2013, the federal government has been refining regulations for its HECM program to better protect eligible non-borrowing spouses, and to ensure borrowers have sufficient financial resources to meet their homeowner obligations.

  • 4. Is this a government loan?

    Short Answer: No, this is not a government loan, but a HECM reverse mortgage is insured by the U.S. Federal Government.

    A HECM reverse mortgage is not a government loan. It is a loan issued by a mortgage lender, but insured by the Federal Housing Administration, which is part of HUD.

    Each year the borrower is charged an insurance fee of 1.25% of the loan balance. Your loan balance thus increases by the amount of this fee. The insurance purchased by this fee protects the borrower (1) if and when the lender is not able to make a payment; and (2) if the value of the home upon selling is not enough to cover the loan balance. In the latter case, the government insurance fund pays off the remaining balance.

  • 5. Is this a Home Equity Line of Credit?

    Short Answer: No, a HELOC and HECM are different. A HECM does not require you to pay monthly payments to the lender.

    No, a Home Equity Conversion Mortgage (HECM) is not the same as a Home Equity Line of Credit (HELOC).

    The defining advantage of a HECM over a HELOC, and the characteristic that ends up winning over most seniors, is the fact that the HECM does not require you to pay monthly payments to the lender. You may draw on your credit line as needed without making a monthly payment.

    With a HECM Line of Credit, repayment is only required after the last borrower leaves the home, as long as the borrower complies with all loan terms such as continuing to pay taxes and insurance. The HELOC, on the other hand, requires a monthly payment immediately.

  • 6. What are the requirements?

    Short Answer: The primary requirements: you must be 62+, named on the title, and it must be your primary residence.

    Reverse mortgages have special terms that make them attractive to senior citizens. First of all, there are no income requirements for a reverse mortgage, and usually no credit requirements.

    Additionally, you do not have to make payments on your reverse mortgage as long as you’re living in the home ― reverse mortgages are repaid to the lender when the borrower passes away, permanently moves out, or sells the home. Under the rules of a HECM reverse mortgage, borrowers must be at least 62 years old, named on the title of the home, and use the home as their principal residence. Spouses who do not meet these criteria cannot sign the HECM reverse mortgage loan documents as a borrower and will be identified as either an eligible non-borrowing spouse or an ineligible non-borrowing spouse.

    Prior to taking out the loan, borrowers must consult with a third-party counselor, and they must demonstrate that they can manage home upkeep and pay property taxes and insurance.
    Here is an overview of the requirements:

    1. At least one homeowner must be 62 years of age.
    2. You must reside in the home as your primary residence.
    3. Your home must be either a single-family home, two to four-unit owner-occupied
      home, townhouse, approved condominium unit, or certain manufactured homes.
    4. You must attend an educational HUD-approved counseling session by phone or
      in person.
    5. You must continue to pay property taxes and homeowners insurance.
  • 7. Do both spouses have to be over 62?

    Short Answer: No, only one borrower must be 62 or older, and the other can be a non-borrowing spouse.

    Under the rules of the HECM reverse mortgage, borrowers must be: at least 62 years old, named on the title of the home, and use the home as their principal residence. Spouses who do not meet these criteria cannot sign the HECM reverse mortgage loan documents as a borrower and will be identified as either an eligible non-borrowing spouse or an ineligible non-borrowing spouse.

    Before August 2014, we did not have protections for the non-borrowing spouse. The non-borrowing spouse was left off the mortgage and not protected. A non-borrowing spouse is one of the spouses that is not signing on the mortgage as a borrower. So if the older spouse passes away, the younger spouse would be forced to move out of the home, sell the property, pay off the reverse mortgage, or refinance the reverse mortgage.

    But now, as of August 2014, the non-borrowing spouse is protected. They can stay in their home for the rest of their lives. They just can’t access or borrow any additional funds if there is money left over in the reverse mortgage line of credit. To be protected, the non-borrowing spouse must be living in the home and married to the borrower.

  • 8. What is the application process?

    Short Answer: Part of the process is making sure you will have sufficient cash flow to live on.

    Part of the application process is a financial assessment. This assessment is designed to make sure that once people get a reverse mortgage they will have enough money to meet their financial obligations and have enough money to live. The financial assessment takes a look at their sources of income and assets, and determines if they have sufficient cash flow to live on, otherwise they’re going to be headed to default.

    If it comes up there is a shortfall, then the lender may require that some of the reverse mortgage funds be placed in a set-aside to be used to cover future taxes and insurance.

  • 9. What are the upfront and ongoing costs?

    Short Answer: In addition to closing costs, homeowners must pay property taxes and insurance, and costs to maintain the home.

    Reverse mortgages, like many financial products, have costs associated with them, including some that need to be paid up-front.

    Costs may include:

    Credit report fee:​ Verifies any federal tax liens, or other judgments, handed down against the borrower. ​Cost: generally between $20 to $50

    Flood certification fee​: Determines whether the property is located on a federally designated flood plan. ​Cost: generally about $20

    Escrow, settlement or closing fee:​ Generally includes a title search and various other required closing services. ​Cost: can range between $150 to $800 depending on your location

    Document preparation fee:​ Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. ​Cost: $75 to $150

    Recording fee.​ Fee charged to record the mortgage lien with the County Recorder’s Office. ​Cost: can range between $50 to $500 depending on your location

    strong>Courier fee.​ Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: generally under $50

    Title insurance.​ Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against any loss arising from disputes over ownership of property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance

    Pest inspection.​ Determines whether the home is infested with any wood-destroying organisms, such as termites. ​Cost: generally under $100

    Survey.​ Determines the official boundaries of the property. It’s typically ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrower’s property. Cost: generally under $250

    Note:​ Cost estimates can change over time, and some of these costs may not be necessary.

    Other costs:

    Interest:​ Interest is charged each year just as with other mortgage products. On a traditional mortgage loan, interest along with principal is paid each month by the borrower until the loan is paid. With a reverse mortgage, the opposite occurs — the borrower receives principal each month (and pays no interest) until the loan is due and payable at which point the principal and the interest must be paid off.

    MIP (mortgage insurance premiums):​ HECM reverse mortgage borrowers are charged MIP on an annual basis, however these fees accrue over time and are paid once the loan is due and payable. The annual mortgage insurance premium is 1.25 percent of the outstanding loan balance.

    Responsibility for home costs:​ ​Continuing to pay property taxes, insurance, maintenance and other homeowner costs is required with a reverse mortgage loan. With the involvement of lienholder, the possibility of foreclosure exists if the borrower violates the terms of the mortgage such as by not paying property taxes or neglecting the property. Note: borrowers have a legal right and a window of time to cure a default to prevent or stop a foreclosure from the lender.

  • 10. What about interest payments?

    Short Answer: Interest payments on your loan are deferred to the end of the life of the loan.

    Regarding interest rates, it depends on the program the person chooses. It could be fixed-rate program or an adjustable-rate program. Rates these days are hovering around 4% for the adjustable program and the fixed-rate program is hovering around 5%.

    Your interest rate depends on a few factors:

    • Your age
    • Your home’s value
    • Your property zip code
    • Any existing mortgage balance or liens
    • Number of expected years in the house
    • Your life expectancy

    Using this information, a reverse mortgage professional can help you figure out what your reverse mortgage interest rate will be.

    As with most other loans and credit lines, reverse mortgage interest rates are charged on the funds that you receive from your loan. These charges are calculated daily and added to the loan balance monthly, and can be found on every borrower’s monthly statement.

    The unique part about reverse mortgages is that interest payments on your loan are deferred to the end of the life of the loan: they are not paid up-front, out-of-pocket, or monthly. While most loans require monthly minimum payments to repay the loan balance and all associated interest charges over time, reverse mortgages defer all loan and interest repayment to when the loan matures.

    Reverse mortgage loan maturity events come about if:

    • The home is sold
    • All of the borrowers either move out of the home or pass away
    • The loan goes into default through a borrower’s failure to pay taxes and

    insurance, or comply with all of the loan terms With a reverse mortgage, you are charged interest only on the funds(loan proceeds) that you receive. For example, if you take your loan proceeds as a line of credit, you are only charged interest on the portion of the line of credit you have withdrawn.The interest is compounded, which means you pay ongoing interest on the principal, plus accumulated interest.

    Reverse mortgage products are available with both fixed interest rates and variable interest rates. The variable rate is tied to an index, such as the 1-Yr. Treasury bill or the 30-Day LIBOR (London Interbank Offered Rate), plus a margin determined by yield requirements in the financial markets. The margin is set at the time of loan origination and does not change over the life of the loan. During the life of your loan, the loan balance increases by the amount of compounded interest accrued.

    Because there are no payments made by the borrower during the life of a reverse mortgage, interest is not paid on a current basis. It does not have to be paid out of your available loan proceeds either, but instead accrues, at a compounded rate, through the life of the loan until repayment occurs at the end.

  • 11. How much can I get?

    Short Answer: The primary factors include the person’s age (or age of the youngest spouse), home value, and interest rates.

    The amount of funds that a borrower is eligible for depends on the person’s age (or age of the youngest spouse), home value, interest rates and upfront costs. This determines what is available. Once you know how much is available, then you can determine how you would like to receive payment.

    The older someone is, the more proceeds he or she may receive. This is an age-driven product, so a person who is 62 will not receive as much as a person who is 80. It works very much like an annuity, based on the person’s projected life span.

    To better understand this concept, the lender is advancing an amount of funds that is a percentage of the value of the property, and reserving the remaining value of the property to cover the interest that will accrue over the life of the loan. So therefore if you’re younger, the interest will presumably be accruing over a longer duration of time, so therefore the amount of money you get at first is lower, whereas if you’re older they are presuming that will own the home for a shorter duration of time so the amount of the home’s value that needs to be preserved to cover the interest accrual can be smaller and a larger amount is available.

    You can never borrow 100% of their mortgage. So if you have a $200,000 home, you can never receive a $200,000 loan.

    A reverse mortgage loan uses a home’s equity as collateral. The amount of money the borrower can receive is determined by the age of the youngest borrower, interest rates and the lesser of the home’s appraised value, sale price, and the maximum lending limit.

    Regarding home value, as a rough ballpark estimate, younger borrowers may be able to borrow 50%+ of the property whereas older buyers may be able to borrow 70%+ of the property. FHA does have an upper limit of $636,150. So if your home is above that number, you will default to the $636,150.

    There is a limit on the amount of funds a borrower can access during the first 12 months after closing. If a borrower is eligible for a $100,000 loan, for example, no more than $60,000, or 60 percent, can be accessed. In month thirteen, a borrower can take as much or as little of the remaining proceeds as he or she wishes.

    There are exceptions to the 60 percent rule. A borrower can withdraw a bit more if there is an existing mortgage, or other liens on the property, that must be paid off. A borrower can withdraw enough to pay off these obligations, plus another 10 percent of the maximum allowable amount. That’s an extra $10,000, or 10 percent of $100,000.

  • 12. How much equity do I need?

    Short Answer: There are no specific dollar limits, but you do need a lot of equity to make this work.

    You generally need a lot of equity to make a reverse mortgage work. Although there are no specific dollar limits, the best candidates for reverse mortgages have either paid their homes off or they have only a small mortgage balance remaining.

    If you do have an existing traditional mortgage, your reverse mortgage pays it off and that balance is incorporated in what you borrow. If you have a significant mortgage balance, this would result in minimal cash out, which may negate the purpose.

    You can’t take out all of your equity, but the more you have, the greater the available money from your reverse mortgage.

    Typically, you can take about 80 percent of your equity in a reverse mortgage.

  • 13. How do I receive the funds?

    Short Answer: You can get a line of credit, fixed monthly payments for a specific number of years, or you can receive payments for as long as you live (in the home).

    Proceeds are typically distributed as fixed monthly payments, a lump sum payment, a line of credit, or a combination of these.

    Here is the breakdown:

    • Line of Credit: draw as needed up to a maximum amount
    • Term Payment: monthly payments for a specific number of years
    • Tenure Payment: monthly payments for as long as you live (as long as you’re in the home)
    • Modified Term/Line of Credit: combination of term payment and line of credit
    • Modified Tenure/Line of Credit: combination of tenure payment and line of credit
    • Single Disbursement Lump Sum: a lump sum of cash at closing (typically used to pay off a large mortgage)

    Note: The adjustable-rate reverse mortgage offers all of the above payment options, but the fixed-rate only offers lump sum.

  • 14. How can I use the funds?

    Short Answer: You can choose to use the funds however you want, but you’ll need to pay off your existing mortgage first.

    Proceeds can be received as a line of credit, lump sum, or monthly payments. Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their existing mortgage and eliminate monthly mortgage payments. Borrowers are required to continue paying property taxes and insurance and maintain the home.

    Many seniors use HECM reverse mortgage loans to supplement Social Security, meet unexpected medical expenses, make home improvements, and more.

    For example, you can use the funds to:

    • Consolidate and pay debts
    • Cover daily living expenses
    • Pay for medical expenses
    • Help out family members in need
    • Save for unexpected emergencies
    • Pay for grandchildren’s education
    • Buy a new car or pay transportation
    • Pay for a vacation and enjoy life!
  • 15. When does the loan become due?

    Short Answer: A reverse mortgage loan becomes due and payable when the last surviving borrower sells the home, moves out, or passes away.

    Typically the loan does not become due as long as you live in the home as your primary residence and continue to meet all of the loan obligations. The loan does not generally have to be repaid until six months after the last surviving homeowner moves out of the property or passes away. At that time, the estate typically sells the home to repay the balance of the reverse mortgage and the heirs receive any remaining equity.

    A reverse mortgage loan becomes due and payable when the last surviving borrower:

    • Sells the home;
    • Conveys title of the loan to someone else;
    • Passes away;
    • Fails to pay property taxes, insurance premiums, condo fees, and other “mandatory obligations,” and all options to bring the loan current have been exhausted;
    • Fails to maintain the home and allows it to fall into disrepair; or
    • Resides outside of the principal residence for a period exceeding 12 consecutive months due to physical or mental illness.

    A borrower can repay the loan balance with proceeds from the sale of the home or by using personal funds to satisfy the debt.

    A borrower may choose to make payments on the loan at any time without a prepayment penalty. Borrowers must repay their loans when they sell their home or die. Under new guidelines, if the older spouse dies, the surviving spouse can remain living in the home without having to repay the reverse mortgage balance as long as they keep up with property taxes and homeowners insurance, and they reasonably maintain the home.

    The loan does not generally have to be repaid until six months after the last surviving homeowner moves out of the property or passes away. At that time, the estate typically sells the home to repay the balance of the reverse mortgage and the heirs receive any remaining equity. The estate is not personally liable for any additional mortgage debt if the home sells for less than the payoff amount of the reverse mortgage loan.

    Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home.

    When the reverse mortgage loan does become due, the borrower’s heirs/estate can choose to repay the reverse mortgage loan and keep the home or put the home up for sale in order to repay the loan. If the home sells for more than the balance of the reverse mortgage loan, the remaining home equity passes to the heirs.

    No debt is passed along to the estate or heirs. A reverse mortgage loan is “non-recourse,” meaning that if you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

  • 16. What about my existing mortgage?

    Short Answer: You use the funds of your reverse mortgage to pay off your existing mortgage.

    When a person has the proceeds from a reverse mortgage, they have to pay off any existing mortgage that is there. Just like a traditional refinance — if you have a mortgage on the property, that has to be paid off.

    And if you think about, if a person is retired or wanting to retire, and they’re still carrying a traditional mortgage into retirement, that can be quite a burden on folks.

    So a HECM reverse mortgage will allow them to pay that off, and if there are any existing funds available, they can use that for any other option that they have.

  • 17. Is this a second mortgage on my home?

    Short Answer: Unlike a traditional second mortgage, a reverse mortgage “reverses” the flow of payments, so that the lender is paying the borrower.

    A second mortgage is a loan that’s secured by the value (or equity) in your home. The amount of your equity is calculated by having an appraiser determine the market value of the home. Your equity is the difference between the amount that you still owe on the house, and the market value of the home now.

    For example, if your home’s market value is $200,000 and you owe $50,000 on the original mortgage, you have $150,000 of home equity. That equity can be used to finance a second mortgage, which will provide you with cash. A reverse mortgage basically “reverses” the flow of payments, so that the lender is paying the borrower. Reverse mortgage loans were first introduced in 1989 to allow senior citizens (aged 62 or older) to access a portion of their home equity without having to move. Prior to the development of reverse mortgages, retirees seeking to withdraw that equity had to sell their house or take out a Home Equity Loan (HEL).

    Reverse mortgages have special terms that make them attractive to senior citizens. First of all, there are no income requirements for a reverse mortgage, and usually no credit requirements. Additionally, you do not have to make payments on your reverse mortgage as long as you’re living in the home ― reverse mortgages are repaid to the lender when the borrower passes away, permanently moves out, or sells the home.

  • 18. What types of homes are eligible?

    Short Answer: The principal qualification is that the home is your primary residence.

    HECM reverse mortgages are for your primary residence, so ineligible properties include investment properties, vacation homes, cooperatives, bed and breakfasts, and new construction without a Certificate of Occupancy. Here is the breakdown:

    Homes That Could Qualify:

    • Single Family Homes:​ as long as it’s your primary residence
    • Multi-Family Homes:​ as long as one of the units is the main residence
    • Condominiums:​ those that could qualify are on an approved list by the FHA
    • Manufactured Homes:​ could qualify as long as they are approved by HUD
    • Farms on Agricultural Land:​ calculated with the value of the house

    Homes That Do Not Qualify:

    • Second Homes:​ it’s not the borrower’s primary residence
    • Vacation Homes:​ it’s not the borrower’s primary residence
    • Mobile Homes:​ must be considered permanently attached to land
    • Co-ops:​ since they are not secured by real property, but with shares
    • Multi-family of 4+ Units: ​ considered commercial property, not residential

    Only residential properties are considered for reverse mortgages.

  • 19. Can I sell my home at any time?

    Short Answer: Yes, once you get a reverse mortgage you can sell your home at any time. But when you do, the loan becomes due and payable.

    What happens if you want to sell the house before the end of the loan? You can sell your home at any time, and you can refinance at any time. But when you do sell your home, the loan becomes due and payable.

    Remember, the loan becomes due and payable when the borrower moves, sells, passes away, or fails to pay property taxes and insurance, or maintain the property.

  • 20. Do I continue to own my home?

    Short Answer: Yes, you continue to own the home, as long as you pay your taxes and insurance and maintain the home.

    There are still a lot of seniors who think the reverse mortgage is a loan where “the bank takes your house and you get a little bit of money.” This is not true. With a reverse mortgage, the borrower always retains title or ownership of the home. The lender never, at any point, owns the home even after the last surviving spouse permanently vacates the property. It’s important to remember that this is a program that is carefully controlled by the government.

    As long as you continue living in the home as a principal residence, stay current on taxes and insurance, and maintain the condition of the home, you cannot be forced to move.

  • 21. Could I lose my home?

    Short Answer: It is possible to lose your home if you fail to pay property taxes or homeowners insurance or don’t maintain your home.

    Yes, it is possible. Borrowers can default on a reverse mortgage, and possibly lose their homes, if they fail to meet certain loan terms, including paying property taxes, having homeowners insurance and maintaining their homes. That sometimes happens when borrowers take a lump-sum payout and later run out of money to pay taxes, insurance and upkeep.

    A growing number of such reverse-mortgage defaults over the last few years has prompted the government to require more underwriting of borrowers to make sure that they can pay ongoing obligations and to tighten procedures governing foreclosures prompted by delinquencies involving FHA-insured mortgages.

    Some companies have tricked consumers into believing they could not lose their homes with a reverse mortgage. So let’s make this very clear — yes, you could lose your home if you fail to pay property taxes or homeowners insurance or you don’t maintain your home with regular upkeep.

  • 22. Will it affect my benefits?

    Short Answer: A reverse mortgage will not affect your Social Security, Pension, or Medicare benefits. It could only affect Medicaid.

    A common concern you may have with a reverse mortgage is will your benefits be affected when you receive a reverse mortgage? Will you still be able to collect Social Security? Will your pension be affected? What happens to your Medicare or Medicaid benefits? There are a lot of myths about what happens to your benefits, so here are the facts.

    Social Security:​ A reverse mortgage does not affect your Social Security benefits. You will still be able to receive your benefits and they will not change once you have your reverse mortgage. You have been paying into your Social Security while you have been working, and receiving a reverse mortgage will not affect your benefits.

    Pension Benefits: ​Your pension benefits are something you established with your employer and this cannot be affected by receiving a reverse mortgage.

    Medicare Benefits: ​In 1965, Congress created Medicare under a part of the Social Security Act to help seniors with healthcare costs. Medicare was a way to provide health insurance to people age 65 and older. Like Medicare, a HECM reverse mortgage is a government-backed program that helps seniors financially. You keep your Medicare benefits when you receive a reverse mortgage, and vice versa.

    Medicaid Benefits: ​The only thing that could possibly be affected with a reverse mortgage is your Medicaid benefits. Medicaid eligibility requires applicants to have no more than $2,000 ($3,000 for a couple) in assets on any day out of the month. Although this will not affect your eligibility to obtain a reverse mortgage, you may not be able to receive your Medicaid benefits.

  • 23. What if my spouse survives me?

    Short Answer: Your spouse can remain in the home and the loan repayment will be deferred.

    Historically, the amount you can borrow with a reverse mortgage has depended on a number of factors, including the age of the youngest borrower. If your spouse was considerably younger than you, you’d get less money with a reverse mortgage if you included him or her on the loan.

    Because of this, mortgage brokers sometimes advised homeowners to quitclaim the property to the older spouse and leave the younger spouse off the mortgage to increase the amount of the loan. In many instances, brokers misled younger spouses by assuring them that they would be able to remain in the home after the borrowing spouse died.

    However, once the borrower died, the surviving spouse (who was not named on the loan) was often shocked to learn that the loan had to be repaid immediately or else the lender would foreclose on the property.

    This changed with the ​Bennett​ ruling, and in August 2014, HUD updated its loan rules to state that the non-borrowing spouse may remain in the home after the HECM borrower dies (and the loan repayment will be deferred) so long as:

    • The non-borrowing spouse is married to the borrower at the time of the loan closing (and remains married to the borrower for the duration of the borrower’s lifetime).
    • Their spousal status is disclosed at the time of the closing.
    • The non-borrowing spouse is named in the loan documents.
    • The non-borrowing spouse has occupied, and continues to occupy, the property securing the HECM as his/her principal residence
    • The non-borrowing spouse establishes legal ownership (or another ongoing legal right to remain in the home) within 90 days of the death of the last surviving borrower, and
    • The non-borrowing spouse meets all of the obligations described in the loan documents.
  • 24. Can I leave my home to my heirs?

    Short Answer: Yes, after the last surviving homeowner passes away or moves out, the heirs will have several options to retain ownership.

    Yes. After the last surviving borrower or remaining eligible non-borrowing spouse passes away, or permanently leaves the home, there are several different ways the loan can be repaid. The heirs or estate can:

    • Sell the property and use the proceeds to pay the loan balance;
    • Use personal funds or gifted money to repay the loan;
    • Purchase the property for 95% of the appraised value;
    • Provide the lender with clear and marketable title to the home through a “deed in lieu of foreclosure. This means the heirs would sign a deed to the lender surrendering the keys to the property, and they would no longer have to do anything else with that property.
    • With regards to inheritance, reverse mortgage loans are not assumable and heirs cannot take possession of the home until the debt is satisfied either by:
    • Repaying the loan with personal funds;
    • Funds from the estate, if available;
    • Or by obtaining separate mortgage financing, if they qualify for such financing at that time.

    Once the loan becomes due and payable, the lender will send a letter, called a demand letter, that explains the process and timelines for repaying the loan to the heirs. The lender will work with the heirs and communicate the following options: After the last surviving borrower or remaining eligible non-borrowing spouse passes away, or permanently leaves the home, there are several different ways the loan can be repaid: The heirs or estate can:

    • Sell the property and use the proceeds to pay the loan balance;
    • Use personal funds or gifted money to repay the loan;
    • Purchase the property for 95% of its appraised value (known as a short sale);
    • Provide the lender with clear and marketable title to the home through a “deed in lieu of foreclosure.”

    Once the demand letter is provided, your heirs will have 30 days from the date of that demand letter to choose one of those options. This also means your heirs will have plenty of time to remove your personal property from your home.

    A reverse mortgage is a “non-recourse” mortgage loan. “Non-recourse” means that neither the homeowner nor the heirs will ever owe more than the sale price of the home. The lender’s that own this loan while you have it have no other recourse but the property itself, so they can’t go after the heirs for money or anyone else if the property is upside down.

    An example of that is if you have a market crash and the value is $200,000 but you owe $300,000 on the reverse mortgage that you borrowed — you don’t have to pay that loss, and your heirs don’t have to pay that difference. It is a “non-recourse” loan so the FHA’s mortgage insurance will step in and cover that loss.

  • 25. How long do my heirs have to repay?

    Short Answer: Heirs typically have 30 days to repay the loan, but this can be adjusted if the heirs show good intent.

    Normally the heirs have 30 days to repay the loan after someone passes and the loan becomes due and payable. The lender will provide a 30-day demand letter and the heirs choose an option to repay. 30 days sounds like a very short period of time to repay the loan. What this really means is the heirs or estate have 30 days to contact the lender and make arrangements in good faith. HUD just doesn’t want the property to be deteriorating while it sits vacant. They want someone looking after the home and working diligently to resolve the situation. This 30-day period can also extended.

    It is important to be aware that this “30-day demand letter” may include some harsh language and scare some people, but this language is required by HUD. If the heirs follow up with the lender, and it is their decision to buy the house and they need to arrange financing, or they are putting the house up for sale and they can show progress in doing so like listing it with a realtor, the lender can give them an extension. The lender can initially give them up to six months if the good faith effort is there, and two more three-month extensions after that to pay off the loan. So there is some flexibility, but it is only there if the heirs or the estate openly work with the loan servicer on it.

  • 26. What if I move to a care facility?

    Short Answer: Your loan will become due and payable after 12 consecutive months of non-occupancy.

    If you get a reverse mortgage and then circumstances dictate that you need to move to a care facility of some type, what happens? This depends on several factors including whether you are married and your spouse is a co-borrower, and whether you are moving temporarily or permanently out of the home.

    So if both the husband and the wife are on the loan, and one of them has to go to a care facility, that does not call this loan due and payable. As long as the co-borrower is still in the home, living there as a primary residence, they’re fine.

    With regard to illness, if it’s a single borrower and the move to a care facility is permanent (longer than 12 months), the loan will need to be repaid with outside funds or by selling the home. For married borrowers, the spouse can continue living in the home even if the co-borrower is moved permanently to a care facility. For a non-borrowing spouse, they cannot continue living in the home if their spouse is moved permanently to a care facility.

  • 27. What if I live with my family for a while?

    Short Answer: You can live outside your home for up to 12 consecutive months.

    The borrower can live outside the home for up to 12 consecutive months — after this, the loan becomes due and payable.

    There is a requirement of HUD that the lender has to certify your occupancy annually. So if you vacate the property for an extended period of time, it is a good idea to notify your lender. If your lender sends an occupancy certification form while you’re gone and it comes back undeliverable, then the lender may assume you are no longer living there and make a second attempt. After the second attempt the lender will order a property inspection to see if it’s occupied.

    It’s critical to notify your lender if you leaving your home for an extended period of time, and avoid the loan becoming due and payable.

  • 28. What is the Right of Rescission?

    Short Answer: This is your right to cancel if you feel uncertain right after signing the documents.

    When obtaining a reverse mortgage, it’s important to understand not only your obligations, but also your rights. One of those rights is the Right of Rescission. Often referred to as a cancellation clause, the Reverse Mortgage Right of Rescission is just that. If for any reason you are unhappy with your decision and wish to cancel the reverse mortgage, you have 3 business days to do so. That’s 3 days after you’ve already signed the documents and have technically already received the reverse mortgage. Best of all, there are no cancellation fees associated with such a cancellation. The lender must return all of the closing costs, minus any interested on any funds that you have already received.

    If you wish to exercise your right of rescission, simply contact the lender in writing within 3 business days of closing on the mortgage. Send the request using certified mail and save a copy for your records. Once the lender receives your notification they have 20 days to return any unused funds after they have retained a portion for the financing you received within the three-day window.

  • 29. How do I find a third-party counselor?

    Every lender must provide a list of third-party counselors that are available nearby or by phone. You can search the ​HECM Counselor Roster​ to find a HECM counselor near you, or call (800) 569-4287.

    You may also contact a HECM counselor from FHA’s ​National HECM Counseling Network​. These counselors provide both face-to-face and telephone counseling nationwide.

    If you want further assistance, you can contact the ​FHA Resource Center​.

  • 30. Can a reverse mortgage loan be trusted?

    Short Answer: Yes, HECM reverse mortgages are monitored and insured by the U.S. Federal Government.

    Here are some points to consider:

    A HECM reverse mortgage is an FHA-insured loan. This means the FHA is monitoring the activity of those who do these loans.

    All HECM reverse mortgage loan borrowers must meet with an independent third-party counselor before applying for the loan. These counselors make sure that seniors are not being pressured, mistreated, or taken advantage of.

    Scams, fraud, and financial exploitation of older adults are considered elder abuse.

What Leading Experts Say

Reverse mortgages have transitioned to a retirement income tool as part of an overall retirement income plan.

Wade Pfau, Forbes

If you’re near retirement and worried you won’t have enough money, a reverse mortgage might be a smart strategy.

Deborah Kearns, USA Today

If you’re short on cash in retirement but do have equity in your home, you might want to get a reverse mortgage.

Donna Rosato, Money

A reverse mortgage is a financial vehicle used by plenty of older Americans to access cash from their home.

Michael Lazar, Huffington Post

The benefit of a reverse mortgage is that it puts cash in your pocket to help you cover your retirement expenses.

Maurie Backman, Fox Business

More financial advisers have warmed up to the idea of homeowners taking a reverse mortgage line of credit.

Jeff Brown, Wall Street Journal

Reverse Mortgage Specialists Standing By: 1-800-490-5703

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