To help you better understand the benefits of a Reverse Mortgage, what follows are frequently asked questions and answers. After reviewing these, please call or email us here at Reverse Mortgage Northwest if you have any other questions, would like some additional information, or to schedule a no cost, no commitment orientation where we will provide even greater detail. Our goal is to insure that your decision to have a Reverse Mortgage is an informed one.
Click any of the questions below to view our answer.
Reverse Mortgages enable homeowners age 62 and over to borrow against the equity in their homes without having to sell the home, give up title to it, or assume a new monthly mortgage payment. The name “reverse mortgage” is appropriate because the payment flow is reversed whereby instead of you making monthly payments to a lender (like a regular mortgage), the lender makes payments to you.
They were created in the late 1980’s by the Federal Government’s Department of Housing and Urban Development (HUD) from the lobbying efforts of AARP. Most Reverse Mortgages made today are insured by the Federal Housing Administration (FHA), a government-supported mortgage insurance program. Today, hundreds of thousands of homeowners are enjoying the tax-free benefits of this government-backed program.
There are two basic types of Reverse Mortgages to consider:
- Home Equity Conversion Mortgages, know as HECM, are what make up the majority of Reverse Mortgages. These are insured by the Federal Housing Administration in addition to HUD and can provide a greater loan advance than other reverse mortgages and may include a line of credit that can appreciate.
- Private Cash Account Reverse Mortgages typically apply to homes with an appraised value in excess of $500,000. While this loan may have higher closing costs, it still has the same options for distribution. A line of credit may be offered as an added benefit.
There are three options, including:
- HECM Standard – this is the most common with a fixed rate option offering the highest payout.
- HECM Saver – as the newest program, it is available with reduced fees and a reduced payout.
- HECM Adjustable – this offers multiple payout options and is the least used of the these three choices.
You are eligible for a HECM Loan Program if you are age 62 or older, own your home, or have a low mortgage balance that can be paid off with proceeds from the reverse loan, and if your home is the primary residence for at least one of the owner-borrowers. There are no income, employment, credit, medical, or asset requirements needed to qualify.
The property must be a single family or a two-to-four unit dwelling. This eligibility includes detached homes, Town Homes, Condominium units, planned unit developments (PUDs), and some manufactured homes (built after June, 1976). All homes must be the borrower’s primary residence and meet HUD minimum property standards (in some cases, home repairs can be made after the closing of the HECM).
Yes, although your new Reverse Mortgage must be in a first-lien position so any existing indebtedness must be paid off. You can pay off the existing mortgage with proceeds from your Reverse Mortgage, money from your savings, or assistance from a family member or friend.
As the homeowner, you are still required to pay all property taxes and homeowner’s insurance plus any other conventional obligations such as utilities.
Yes, the title stays in your name along with any co-borrowers you choose to have on it, as long as they meet the same Reverse Mortgage criteria.
There are no monthly payments due on a reverse mortgage as long as it remains outstanding. The loan is due and payable only when you no longer occupy the property as your principal residence or fail to comply with the loan agreement. There is no requirement that the property be sold, only that the loan be repaid. If the home is sold, and proceeds from that sale exceed the amount owed on the Reverse Mortgage, that excess money goes to you or your estate.
Funds received from your Reverse Mortgage will not impact or affect eligibility for retirement, survivor, disability, or Medicare benefits payable under the Social Security Act.
No, due to the fact that the proceeds from HECM Loans are not considered income. Although it is a certainty that Social Security and Medicare are not affected, monthly HECM Loan advances may affect eligibility for some other programs and we encourage checking with local program offices to determine how, or if, monthly HECM Loan payments might impact your specific situation.
You are charged interest only on the amount that you receive. This interest is not taken out of your proceeds but rather compounds over the life of the loan until repayment takes place.
There are no restrictions on how it can be used because the money is 100% yours. It can be used anyway you want including to pay off existing bills and credit cards, to remodel your home, buy a car, take a vacation, or simply to retire in comfort.
Loan processing typically takes 4 to 6 weeks. We work with you through every step from completion and submission of the loan application through closing. A professional appraiser will be used to determine the value of your home which is used to calculate the amount you can receive as part of your HECM Loan. Following submission of your application, you will receive a disclosure of the estimated total cost of the loan, as required by the Federal Truth In Lending Act. The closing for a HECM Loan typically takes place in your home because the loan documents, including the mortgage and Deed of Trust, are forwarded to you to simply sign where directed. After signing, you then have 3 days to cancel the mortgage if you change your mind. Specified cash disbursements due to you will be forwarded from the title company after the loan has been funded and recorded.
You can choose to receive the money from your Reverse Mortgage all at one time as a lump sum payment (required payout for a fixed rate loan), in fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or in a combination of these three options. Not all of the payout options are available for both fixed and adjustable rate Reverse Mortgages.
Your heirs will have the choice to either repay the loan or sell the property at fair appraised value. No additional financial claims can be made against your heirs or your estate because a Reverse Mortgage is a non-recourse loan meaning that even if the outstanding loan amount is greater than the home’s appraised value, any outstanding debt will be forgiven.
A Reverse Mortgage is a proven way to benefit from use of the equity that you have built up through home ownership. The income received from your HECM Loan can be used for a variety of purposes and, like a regular home refinance, there are no restrictions on how these funds can be used, including in such ways as:
- Supplement retirement income
- Cover or Pay-off medical expenses
- Make improvements or repairs to the home
- Use for property taxes
- Pay for in-home care
- Enjoy yourself, and more!
You are always welcome to contact us here at Reverse Mortgage Northwest for more information, to have additional questions answered, to receive our Reverse Mortgage Information Guide, or to schedule our no cost, no commitment orientation on all the benefits of a Reverse Mortgage.