What is a reverse mortgage?
A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income—without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower permanently leaves the home. Reverse Mortgages are also know as HECM (home equity conversion mortgages) and are regulated and insured by the Federal Government.
What are the advantages of a reverse mortgage?
A reverse mortgage allows you to remain in your home and retain home ownership.
You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
The money you get from a reverse mortgage is yours to use in any way you choose.
How much money can I get?
The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, the appraised value of your home and FHA's lending limits for your area. In most cases, the older you are, the more valuable your home, and the less you owe on it, the more money you may get.
How may I use the money I get from a reverse mortgage?
The cash-out you receive from your reverse mortgage (if you choose a line of credit, lump sum or monthly payments) may be used any way you see fit. Fix your home, help a grandchild with their education or go on a long awaited vacation--it's all up to you.
How may I receive my money from a reverse mortgage?
o All at once, in a lump sum.
o Fixed monthly payments either for a set term or for as long as you live in the house.
o Line of credit, which is the most common option, allows you to draw on proceeds any time and grows as your home grows in value.
When must a reverse mortgage loan be repaid?
Your reverse mortgage becomes due and must be paid in full when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems.
What are the costs and fees?
There are only two up-front costs for a reverse mortgage. First, each borrower must in person or by phone attend an hour counseling session to discuss reverse mortgages and their options (generally about $150/person). Appraisal fees are paid by credit card once the loan has been credit approved (generally about $500-$600).
There are no lender or broker fees as these are zero points loans. Third party fees for escrow, title, credit vary between $2500 and $3500 and may be added to the loan.
To find out the exact fees for your home please have me prepare a FREE HECM proposal for you.
Are reverse mortgage interest rates fixed or variable?
Both fixed and adjustable rates mortgages are available.
Are there tax consequences? What about my Social Security and Medicare benefits?
Because reverse mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.
Another tax fact to keep in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely. Be sure to consult your tax advisor if you have any questions.
If I take on a reverse mortgage, how will it affect my government benefits?
The funds from a reverse mortgage do not affect regular Social Security or Medicare benefits. Feel free to discuss the impact of a reverse mortgage on federal,state or local assistance programs with a professional advisor, such as your Local Area Agency on Aging (toll free at 1-800-677-1116).
*Please consult your attorney, tax preparer or financial consultant to find out how a reverse mortgage may effect you