The Reverse Mortgage Explained
We understand that reverse mortgages can be difficult to understand. With any mortgage or financial loan, there are different questions and concerns to be addressed for each individual person. That’s why we have answered the most commonly asked questions held by our clients in order to help you better understand the ins-and-outs of the reverse mortgage. Click on the question you would like answered and read the answers supplied by a reverse mortgage expert from Slade Mortgage Group.
What is a reverse mortgage?
A reverse mortgage is a loan available to people over 62 years of age that enables borrowers to convert part of the equity in their home into cash.
This loan is called a “reverse mortgage” because the process of the traditional mortgage payback stream is switched around or “reversed.” So with a regular mortgage where a borrower makes monthly payments to a lender, but with a reverse mortgage the lender makes payments to the borrower.
Unlike a traditional mortgage loan, there are no monthly principal and interest payments so long as one of the borrowers lives in the mortgaged property as their primary residence.
Does my home qualify for a reverse mortgage?
Property types that are considered eligible include:
- Single family homes
- 2-4 unit properties with one unit occupied by the owner
- FHA approved manufactured homes built after June 1976
- FHA approved condominium and townhouse projects
- Co-ops do not qualify for a reverse mortgage.
The property must also meet the standards of the FHA. If you are unsure whether or not your property meets the approved FHA standards, we will come to you to help identify any potential issues with your home. We can also assist in identifying if your condo is FHA approved and are currently working with local condo associations in order to get them FHA approved.
What are the borrower requirements to get a reverse mortgage?
In order to qualify for a reverse mortgage, the following criteria must be met:
- Youngest borrower is aged 62 or older
- The mortgaged property is the primary residence of the borrower
- Have enough equity in the home
- Potential borrowers must complete reverse mortgage counseling with an HUD approved counselor. Call (508) 548-0177 to schedule a free consultation today.
Lenders must also conduct a comprehensive financial assessment for a potential borrower to ensure they have the necessary financial capabilities to continue paying for mandatory obligations, including property taxes and homeowner’s insurance.
If a lender believes that a borrower may not be able to maintain payments for property taxes and homeowner’s insurance, they will be able to place a certain amount of funds from the reverse mortgage loan aside to pay for future charges.
What do people use reverse mortgages for?
Reverse mortgages were conceived as a means to help people in or near retirement who have limited income use the money they have put into their home to pay off debts (including traditional mortgages), cover basic monthly living expenses or pay for health care. There is no restriction on how a borrower may use their reverse mortgage proceeds.
Reverse mortgages were designed, first and foremost, as a means to help seniors with limited income use the money they have put into their home over years of making mortgage payments. The funds from a reverse mortgage are primarily used to pay off any existing debts, cover basic living expenses, or healthcare. There are no restrictions on how a borrower may use their reverse mortgage proceeds.
Should my parents get a reverse mortgage?
The vast majority of American seniors have their wealth built into their home equity. If your parents are struggling to meet their month-to-month expenses or pay for additional health expenses, tapping into that equity may be the best solution for your parents and your family. A reverse mortgage is a financial product that allows them to do just that. Essentially, a reverse mortgage can be used to ease financial stress by providing borrowers and their families with a secure, complimentary income source for better peace of mind.
What are my payment options?
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments (for up to life), as a line of credit, or a combination of these. The most popular option is the line of credit, which allows someone to draw on the loan proceeds when needed.
Our goal is to help you identify the best way to access your equity in order to improve your quality of living and extend the benefits of the reverse mortgage. We do this with one of or a combination of the following:
- Fixed rate with a onetime lump sum payment.
- A line of credit that allows you to choose the time and amount of funds you want to withdraw from your reverse mortgage.
- Tenure planning provides you with equal monthly payments as long as one person resides in the property as a primary residence.
- Similar to tenure planning, the term payment option pays you on a monthly basis with equal payments but for a fixed period over a predetermined amount of time.
We also help plan with you to find the right combinations of options that best fit your needs and financial goals. To learn more, call us today or ask an expert about how these options can work for you.
How much money does someone get with a reverse mortgage?
The amount of money you are eligible to receive depends upon several factors:
- Age of the youngest borrower
- Appraised home value
- Current interest rates
- The balance of any existing lines on the property
- Variable versus fixed payment options
- The FHA lending limit, which is a maximum of $625,500 for a loan amount in Barnstable County.
When is the reverse mortgage balance paid back or due?
The balance from your reverse mortgage loan is due back when either:
- The home is sold
- Last surviving spouse passes away or has failed to occupy the property as a primary residence for 12 consecutive months
- Borrowers fail to maintain property, pay property taxes, or homeowners insurance
Are they any special requirements to get a reverse mortgage?
As long as you are on title, at least 62 years old, and have sufficient equity, you can get a reverse mortgage.
Is there a prepayment penalty?
The reverse mortgage can be repaid at any point with no prepayment penalties, and can be paid down periodically to access additional funds in the equity line or keep the loan balance low.
What happens to my reverse mortgage if I pass away or move from the home permanently?
Your reverse mortgage will have to be repaid when the last surviving borrower on the loan passes away, moves from the home permanently, or does not occupy the home for longer than 12 months.
Depending on the type of reverse mortgage you received, you (or your heirs) may be eligible for time extensions ranging from six months up to one year. These potential time extensions are only to be used to provide time to satisfy the balance of the reverse mortgage.
If the home is sold for more than the balance of the reverse mortgage, the remaining proceeds from the sale are yours (or your estate’s) to keep.
Disclaimer: This material is not from HUD or FHA and the document was not approved by the department or government agency.