What is a Reverse Mortgage?

• A reverse mortgage allows elderly borrowers to obtain a loan against the equity on their house.
• This type of loan is often used to pay off debts and increase cash flow.
• Applicants must attend an informational counseling session, in person or over the phone, before they can be eligible for the loan. 
• Eligible borrowers are 62 or older. The older the borrower, the higher the loan amount can go, due to a perception of morality. Amount available is based on the youngest homeowner.
• Only primary residences are eligible for reverse mortgages.
• No matter the value of the home, reverse mortgages may not exceed the amount of $625,000.
• Applicants do not need to have recorded income or credit score to be eligible for this type of loan.
• The house must be either owned outright or have enough equity to repay the remainder of the mortgage, and must be located on land that the borrowers own.
• While homeowners do not need to make any payments to the bank, they are still responsible for paying homeowners insurance and local property or real estate taxes.
• Money received from the reverse mortgage does not interfere with social security benefits or Medicare.
• Trailers homes are also eligible for a reverse mortgage as long as they are built after 1975 and are on a permanent foundation, again, with the land being owned.
• The money comes in either a lump sum, monthly payments, or as a line of credit that can be drawn upon at any time in any amount until it’s exhausted.
• When the home is sold or the owner passes away, either the sale of the estate or heirs repay the lender.
• The loan is typically repaid by selling the house and remaining equity goes to the heirs.
• The equity taken out of the home with the loan does not have to be repaid until the last surviving homeowner sells the home, moves, or passes away. At this point there are 6 months to repay the loan or sell the property.
• If the sale of the home is not enough to cover the amount of the reverse mortgage, the lender must take the loss. They can not take investments, second homes, cars or other valuables from the estate in order to repay the loan.
• The amount borrowers are eligible for is limited by age of the youngest homeowner, current interest rates, appraised home value, and the government imposed lending limit of $625,000.

 

How to Make it Work 

• Consult your accountant or tax advisor before filing and only apply for this loan if there is a real need for it.
• The longer you can wait to take out the loan, the better, as older borrowers qualify for more money.
• Wait until all borrowers qualify for the loan. If a couple is living in their home but only one of their names is on the loan, if that borrower passes, the loan will come due and the living spouse risks losing their home.
• Borrowers can begin to repay their loan at any point, and there is no prepayment penalty.

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