What is a Reverse Mortgage and who does it benefit?

A reverse mortgage is also known as a Home Equity Conversion Mortgage (HECM). The program was created by the Federal Housing Administration (FHA) specifically to help homeowners, aged 62 years and older. A HECM can provide seniors the means to enjoy home ownership through retirement. It may help reduce financial stress by using the equity from the home to eliminate monthly mortgage payments.

What do I need to qualify?

Since the HECM program was created to help seniors, there is an associated age requirement for the Borrower: 62 years or older. The Borrower must own the home and live in the home as a primary residence. If the home has a mortgage balance it must be paid in full at the close of the reverse mortgage either with the reverse mortgage proceeds or if needed, cash can be brought to closing by the borrower to satisfy the existing balance. Education is an important part of the process and borrowers must complete a HUD required counseling class to review program features.

Are Reverse Mortgages a safe way to own property?

Reverse Mortgages were created and are insured through FHA. They have additional consumer protections, like retaining title to the home and the non-recourse feature (neither you nor your heirs are personally liable for any amount of the mortgage that exceeds the value of your home), built into the programs that might not be required in other loan options. There are hundreds of thousands of homeowners, like you, who have already taken advantage of the benefits and who are experiencing peace-of-mind that comes from a reverse mortgage.

Is Reverse Mortgage right for everyone?

Like most financial options, a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), may not be right for everyone or every situation. If you are planning on moving out of your home in the near future you may want to consider other options or possibly consider a Purchase Reverse Mortgage for your next home. Although reverse mortgage proceeds do not affect Social Security benefits or Medicare, if you are currently receiving any state-based financial assistance, it may affect eligibility.
The HECM is designed as part of a long-term plan in homeownership; for many seniors facing financial challenges during retirement a reverse mortgage has proven to be an effective solution. Contact a local mortgage representative for more details. <>

Are there costs to a Reverse Mortgage?

Like any mortgage, there are fees that cover costs related to the loan itself and the process of escrow and title. You can expect the following fees when entering into a reverse mortgage: loan origination, title insurance, recording, credit application, and the initial payment of the mandatory mortgage insurance premium (IMIP). For refinance transactions, the fees are financed into the loan itself so the only out-of-pocket expenses are typically the appraisal and HECM counseling fee.

How do I know how much money I qualify for?

There are certain factors that determine how much you will receive from the lender. Based on today’s program requirements, the loan amount is primarily based on the age of the youngest person on title, the appraised value of the home (up to FHA maximum lending limit of $625,500) and current interest rates.

Do I still hold the title to my home?

Yes. You hold title to your property, are required to live there as an owner-occupant, and continue to be responsible for the timely payment of associated property taxes, homeowner’s insurance and, if applicable, homeowner’s association (HOA) fees.

When I leave the home, how is the loan paid back?

When, for whatever reason, you leave the property as its primary resident or sell the property, the principal loan balance plus deferred interest will need to be repaid. In many instances, in order to repay the debt, your heirs will sell the home to satisfy the debt and some elect to refinance the reverse mortgage into another type of loan in order to retain the property. Any remaining proceeds or equity after the debt repayment will become an asset to those heirs or estate. An added benefit to the reverse mortgage is that no matter what happens to property values during the life of the loan, at the time of the transfer of property (refinance or sale,) the debt owed can never exceed the current value of the property. This is due to the mandatory MIP insurance placed on the property.

Is there anything I should give careful consideration of regarding a Reverse Mortgage?

Like other financial decisions, you should always examine all features of a program to ensure it is right for you. A reverse mortgage can provide many options. Interest rates, how you design the reverse mortgage loan proceeds, and how quickly you utilize the funds determine how fast or slowly the loan balance grows. As with any property investment, there may be market fluctuations (up or down) that affect the property’s value over time.

Should a Reverse Mortgage be part of my financial planning portfolio?

A reverse mortgage can provide additional funds in retirement. It can also prevent the depletion of your other assets, allowing them to perform better. This may create additional security and a rainy day account for unexpected expenses. We encourage you to consult with your financial and tax advisors to see if a reverse mortgage might be right for you. We welcome the opportunity to educate you and your advisors on what the programs can offer.

Are there additional resources available to get more information on Reverse Mortgages?

Before making any financial decision, always consult professional industry experts. You can also access information quickly here: Housing and Urban Development (HUD) Portal http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten

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