A reverse mortgage is a special type of mortgage loan that allows homeowners 62 years and older to safely turn the equity in their homes into cash. It can help you improve your retirement years with additional, tax-free funds that never need to be repaid while you live in your home. With a reverse mortgage, you remain the owner of your home, with full control.
You can use the proceeds from a reverse mortgage any way you want. For example, you can pay off an existing mortgage, make home repairs, pay for home health care, or provide a cash cushion for financial security.
Who is eligible for a reverse mortgage?
To qualify for a reverse mortgage you must be at least 62 years of age and live in your home as your primary residence. However, you do not have to meet any income, credit score, asset, or employment requirements.
Is a reverse mortgage safe?
It is comforting to know that the government-insured reverse mortgage is extremely safe and secure. With a reverse mortgage you can never be foreclosed upon for failure to make monthly mortgage payments because no monthly mortgage payments are required.
The FHA reverse mortgage is specifically designed to help you stay in your home for the long term. Talk to your reverse mortgage specialist to review these new and important safe homeownership guidelines.
As an added safeguard, before a reverse mortgage can be processed, you will be required to discuss, by phone or in person, the Reverse Mortgage Program with a counselor from a government approved non-profit counseling agency. This gives you an added opportunity to ask questions and be certain of your choice. We will provide you with a list of counselors so that you can speak with the required agency.
How much money can I receive?
The amount of money that is available to you depends on your age, the value of your home, and the current interest rate. Generally, the older you are, the lower the interest rate, and the higher the value of your home, the more money you can receive.
Can I get a reverse mortgage if I already have a mortgage on my home?
How can I use the money from a reverse mortgage?
- Pay off existing mortgage
- Pay off credit card debts
- Pay for home health care
- Pay for prescription drugs
- Provide a cushion for future security
- Make home repairs or improvements
- Live a more comfortable lifestyle
- Go on vacation, visit the grandchildren
Will I retain ownership and control of my home?
YES! A major benefit of a reverse mortgage is that you continue to own and control what happens to your home. You retain all of the benefits and responsibilities of home ownership. You must continue to pay your property taxes and homeowners insurance.
With a reverse mortgage, you remain in control. You decide how much of the available funds to use. You decide the way in which you receive the funds. Because of the unique nature of the reverse mortgage, you do not have to repay this loan as long as you live in your home.
How much does the reverse mortgage cost?
There are fees associated with a reverse mortgage. Generally, all closing costs can be financed into the loan so you pay little or no out of pocket expenses. Nevertheless, it is important for you to know the cost involved for your specific loan because these costs will become part of your loan balance. Typical fees include an appraisal, title policy, credit report, attorney cost, recording fees/taxes, a lender origination fee, and a 2% mortgage insurance premium paid to the Federal Government.
In addition, because you are not making mortgage payments, the loan balance will increase over time.
What types of homes are eligible for a reverse mortgage?
Most importantly, for your home to qualify for a reverse mortgage it must be your primary residence.
Reverse mortgages can be obtained for many different types of homes, including single-family residences and townhomes. Condominiums that meet specific government guidelines and some mobile homes built after 1976 may also qualify for a reverse mortgage.
What if my home needs repairs?
How do I receive the available money with a reverse mortgage?
A reverse mortgage provides many choices and options for receiving your money. You can receive the proceeds as:
- A single lump sum cash payment.
- A line of credit for a specific dollar amount. In fact, the amount of money available in the line of credit is designed to actually increase over time. This can be beneficial, ask your reverse mortgage specialist to show you how this works.
- A monthly cash advance for a specified period of time or an amount guaranteed for as long as you live in your home.
- A combination of any of these options. Payment options may also be changed upon request to reflect changing needs.
What types of Reverse Mortgage Programs are available?
There are two main types of Reverse Mortgage Programs available: government-insured and private reverse mortgage products. Over 90% of all reverse mortgages obtained are government insured. Although both types of reverse mortgage products work similarly, there are some important differences.
Government-insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECM), are reverse mortgages insured by the Federal Government. As a result, the government ensures that you receive all of your scheduled payments. In addition, with the federal insurance, you are protected from any housing market declines because the total amount of debt that will have to be repaid if the home is sold can never be greater than the value of your home. However, with a HECM reverse mortgage the government has established lending limits that can limit the amount of money available for some high value homes.
A private reverse mortgage product is not insured by the Federal Government. As a result, private reverse mortgages are not subject to the same lending limits and can result in more funds available for high value homes.
How will a reverse mortgage affect my family and their inheritance?
You can still leave your home to whomever you choose, so your family can still inherit your home. When your heirs inherit your home, they can keep the home and pay off the reverse mortgage balance by refinancing or with other assets, or they can sell the home. If your heirs choose to sell the home, they keep any money that is left over from the sale after the reverse mortgage is paid off.
Additionally, a built-in insurance from the Federal Government protects your family and heirs from housing market declines. With this federal insurance, the total amount of debt that will have to be repaid if the home is sold can never be greater than the value of your home. So, in the unlikely event that your home value does not repay the total loan balance, your family and heirs are protected.
As long as both spouses are part of the reverse mortgage, there is no change to the Reverse Mortgage Program. To obtain a reverse mortgage, all borrowers must be listed on the deed to the home and at least 62 years old. Assuming both spouses are borrowers on the reverse mortgage, if one borrower predeceases the other, there is no effect on the reverse mortgage and all terms remain the same. Only when all borrowers permanently leave the home does the reverse mortgage become due.
If your children are at least 62 years old and live in the home, then your children could be included as additional reverse mortgage borrowers. However, if your children are not at least 62 years old or do not live in the home, then you have to remove your children from the deed before you can finalize your reverse mortgage.
Is the Reverse Mortgage Program a government welfare program?
Definitely not! You worked long and hard to build up equity in your home. A reverse mortgage merely allows you to safely turn the equity in your home into cash. The Federal Government insures the loan, guarantees that you receive all scheduled payments and protects your family and heirs from any personal liability on the loan. The Federal government also issues guidelines on the maximum fees that you can be charged to obtain a reverse mortgage.
What if I want to make payments to my reverse mortgage?
There is no prepayment penalty on the reverse mortgage so you can pay part or all of the loan balance at any time.
In fact, you can generally make payments to your reverse mortgage and then re-borrow that money if you choose. The reverse mortgage is designed to adjust to a changing life.
Can I use a reverse mortgage to purchase a home?
Yes! In fact, a reverse mortgage can be an excellent way for an individual 62 years or older to purchase a home without having to make monthly mortgage payments.
A reverse mortgage works similarly to a conventional, forward mortgage but can provide a better option for purchasing a home because there are no monthly mortgage payments. To purchase a home with a reverse mortgage, you make a down payment on the home and borrow the remaining money from a lender. But, unlike a conventional mortgage, with a reverse mortgage, you do not make any monthly mortgage payments. Instead, the loan balance increases slowly over time and is eventually paid off when you no longer live in the home. With the reverse mortgage, you can purchase a home and improve your standard of living without having to make monthly mortgage payments.
Can I use a reverse mortgage to buy a vacation home?
Why should I get a reverse mortgage instead of a home equity loan?
There are many reasons why a reverse mortgage can be a better choice than a normal home equity loan for homeowners 62 years or older.
- The security of knowing that you never have to make a mortgage payment. With a reverse mortgage you have the freedom to choose whether you make payments to maintain the level of equity in your home. With a conventional home equity loan you have no choice, you must make monthly payments.
- With a reverse mortgage, you eliminate mortgage payments on your home. A conventional loan will either add an additional payment or merely substitute one mortgage payment for another.
- With a reverse mortgage, the amount of your income is irrelevant. There are no income requirements. In fact, you do not have to have any income.
- With a reverse mortgage, your credit rating is also irrelevant. If you have had some financial setbacks, it does not matter.
- For many individuals, the interest rate from a reverse mortgage is lower than the interest rate they could qualify for from a home equity loan. Like other financing instruments, reverse mortgages incur costs and fees and the interest rate is only one element to be considered when thinking about reverse mortgage products.
- If you choose a line of credit on the reverse mortgage, there is no risk that your available line of credit will be withdrawn. You are guaranteed that the money will be available when you need it. Generally with a home equity line of credit, the bank can close or reduce your available line of credit at any time. This can happen just when you have the need for the funds.
A Reverse Mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. A Reverse Mortgage works much like traditional mortgages, only in reverse. Instead of making a monthly payment to your lender, the lender pays you. You do not make any payments on your reverse equity loan when you are in it. Funds obtained from a Reverse Mortgage may be used for any purpose such as home improvement, vacation, a new car, or savings.
To qualify for an Reverse Mortgage, you must own your home. The Reverse Mortgage funds may be paid to you in a lump sum, in monthly advances, through a line-of-credit, or in a combination of the three, depending on the type of Reverse Mortgage and the lender. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate you qualify for.
Because you retain title to your home with a Reverse Mortgage, you also remain responsible for taxes, repairs, and maintenance. Depending on the plan you select, your Reverse Mortgage becomes due with interest either when you permanently move, sell your home, die, or reach the end of the pre-selected loan term. The lender does not take title to your home when you die, but your heirs must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage (if the heirs are eligible) or by using the proceeds from the sale of your home.
You choose one of the following payments each month:
- No payments are required as long as you live in your home.
- Income received from your Reverse Mortgage is usually tax-exempt (consult your tax adviser) and does not affect regular Social Security or Medicare benefits, but may affect eligibility for other types of government assistance.
- You retain ownership of your home.
- You can use the proceeds to pay off an existing mortgage and eliminate your monthly mortgage payments.
- Reverse Mortgages provide you with a source of income that can be used to improve your standard of living and maintain your independence.
7th Level Mortgage, LLC is a trusted provider of mortgage related products to Seniors and Veterans in the States of New Jersey, Pennsylvania, Florida and Delaware. We work with several elderly care attorneys and financial planners to make sure that you receive the best possible advice and guidance when it comes to your financial picture. Call us today for a FREE NO OBLIGATION discussion about your financial future.