What is a reverse mortgage?

Reverse mortgages are low-interest loans for senior homeowners, that use the home’s equity as the security for a loan. The loan amount is a percentage of the home’s value.  In simple terms, a reverse mortgage is a government sponsored “home equity line of credit” for senior homeowners who are 62 years or older that does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away.  At that time, the estate has approximately a full year to repay the balance of the reverse mortgage by selling the home or refinancing the loan to pay off the balance.  After paying off the loan, all the remaining equity is inherited by the estate. As a safeguard to the senior and the heirs, the repayment amount can never exceed the value of the home.

The reverse mortgage allows seniors to unlock some of their home’s equity without having to make monthly payments for the loan money that is used.

What is the difference between an equity line and a reverse mortgage?

Both loans convert the equity in your home into available cash.  To obtain the equity line of credit there are income and credit score qualifications, and you are required to make monthly interest payments to the lender.  With a reverse mortgage, there are NO income or credit qualifications, NO monthly mortgage payments.  Repayment is deferred until you move from your home.  Also, with a reverse mortgage the lender cannot foreclose because of “missed payments”.  There are NO monthly payments to “miss”.

How much reverse mortgage money do I qualify for?

The government has a strict formula that ALL lenders are bound by, to determine the amount of reverse mortgage loan for which you qualify.  The loan size is determined by the value of your home, your age and current interest rates.  Generally, the more your home is worth and the older you are, the more money you can get.

Can I qualify for a reverse mortgage if I Have a Mortgage?

Yes, provided the reverse mortgage loan for which you qualify is big enough to pay off your existing loan. More than 50% of the seniors who take out reverse mortgage use them to pay off their existing mortgage.  Imagine the relief of no more monthly mortgage payments.

How do I receive the money?

Any way you want.  You can take all of the money in one lump sum, in automatic monthly installments, or you can leave the proceeds in the line of credit and draw money whenever you want, and in whatever increments you desire.  You can choose the payment plan that works best for you.

Are there any restrictions on how I spend the money?

No. the money is yours and only you decide how, when, where and why it should be spent.  Many people use the money to pay for necessities of home health care, medication, property taxes and home repairs; while others use the money for luxury items such as vacations, cars, trips to friends and relatives, or gifts to grandchildren.  Others leave the money in the credit line because they want the comfort of knowing they have a cushion against unexpected expenses.

What are My Responsibilities when I Get a Reverse Mortgage?

Basically you have four responsibilities.  The home must remain your primary residence.  You must maintain the property in good condition, not allowing it to deteriorate or fall into disrepair.  You must continue paying your homeowners insurance. You must keep the property taxes current.

What Happens When the Loan has to be repaid?

As long as at least one homeowner lives in the home, the loan does not need to be repaid. At the time of repayment you or your heirs will never owe more than the value of the home at that time.  In the event of death or in the event that the home ceases to be the primary residence, the heirs can refinance the reverse mortgage into a regular mortgage to keep the house or they can choose to sell the home to pay the loan balance.

If the value of the home is greater than the balance of the loan, the remaining equity belongs to the estate and will revert to the heirs. If the value of the home is too small to pay off the reverse mortgage, the lender will requisition the FHA for the shortfall. None of the estate’s other assets are liable for the repayment of the loan.

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