- What is a Reverse Mortgage?
- Why Get A Reverse Mortgage?
- What Can the Funds be Used For?
- Concerns of Having a Reverse Mortgage
- What Types of Payments Can I Receive?
- Will I Qualify For a Reverse Mortgage?
- When is the loan due?
- What is the process to receive a Reverse Mortgage?
“We are no longer struggling to make our monthly mortgage payment. What a relief!” – LS Sunsites, AZ
What is a Reverse Mortgage?
A reverse mortgage is exactly what it sounds like, a mortgage in reverse. A Reverse Mortgage allows you to tap into the equity in your home. Think of your typical mortgage as a forward mortgage, and then let’s compare that to a reverse mortgage.
In a forward mortgage you make payments to the bank each month and the bank reduces the amount of principal you owe on your loan, and you pay the interest accrued on your loan balance for the past month. Forward mortgages are called “Falling Debt, Rising Equity Mortgages”.
In a reverse mortgage the bank can make a payment to you every month. (or go to “What Types of Payments Can I Receive?“). When the bank makes that payment to you they increase your loan balance by amount of the payment and by the interest accrued on that loan for the past month. A Reverse Mortgage is called a “Rising Debt, Falling Equity Mortgage”.
Why Get a Reverse Mortgage Loan?
The simple answer is, “to enjoy life”. So now you have to ask yourself another question, “What would help you enjoy life?” Everyone has their own reason. For many it’s simply the ability to stay in their home longer. For others it is the ability to do things they can not do with their current limited income. And for many others it is simply the need of extra cash flow to pay ever increasing costs of living or to eliminate their current mortgage payment.
There are no wrong reasons for a Reverse Mortgage, only your reason. Seniors will not be forced to leave their homes providing home maintenance expenses, real estate taxes, and property insurance are paid in full.
Also, the home must be maintained in acceptable condition and all loan terms must be followed..
What Can the Funds be Used For?
Anything you want. There are no restrictions on the use of the funds. Here are just a few items that your Reverse Mortgage funds could be used for.
- Monthly living expenses
- Increased housing expenses
- Increased medical expenses
- Home improvements
- Gift for a family member
- Help children with a down payment
- Help grand children with college
- Gift to a charity, university or foundation
- Pay for Long Term Care insurance
- Make you life easier
The list goes on and on. It’s your money; it’s your choice as to how to take advantage of a Reverse Mortgage that will benefit you the most.
Concerns of Having a Reverse Mortgage
I will lose my home or have to give it over to the bank.
With a Reverse Mortgage you are always on the title to your home and the bank secures their interest with a lien similar to a regular forward mortgage, and you can lose your home if you do not pay your property taxes and homeowner’s insurance, maintain your property, and otherwise comply with the loan terms.
Do I have to make monthly payments?
No, on a Reverse Mortgage, you do not pay a monthly mortgage payment. You will be responsible to pay your own property taxes and insurance as well as cost associated with maintenance on your home.
Are there any restrictions on how I can use the funds?
NONE! You can use the money for anything you want.
Do I have to pay taxes on the money I receive?
No, the funds you receive are simply proceeds from a loan on your home. (Be sure to ask your tax consultant)
Will my spouse have to move out after my death?
No, as long as both spouses are named as borrowers on the reverse mortgage loan, they maintain ownership of the home and will be able to continue to access any unused funds from the Reverse Mortgage so long as property taxes are paid, homeowners insurance is paid, and costs associated with home maintenance are paid and the property is used as the primary residence.
Only seniors who are house rich and cash poor use Reverse Mortgages.
Some of the highest net worth seniors in the country are applying for reverse mortgages. Estate planners and wealth management professionals have discovered many ways to use the loan proceeds from a reverse mortgage in creative estate planning.
A reverse mortgage can be used to purchase a home.
We have helped many seniors purchase more home than they thought they could afford with their available cash. In fact they can usually purchase twice the home they expected, and often with no mortgage payments for life. Please note, the HECM reverse mortgage loan may become due during the borrower’s lifetime if the borrower sells the home, moves out of the house, or defaults on other obligations such as insurance or tax payments. Learn more about using a Reverse Mortgage to purchase a home, Click Here.
What Types of Payments Can I Receive?
There are three types of payments you can receive from most Reverse Mortgages. First is a monthly payment. You may choose to receive a predetermined monthly payment that will last until your loan has reached its limit. The payments will continue until the last person living who was a signer on the original Reverse Mortgage Loan remains in the home as their primary residence.
Second is a Lump Sum. You could choose to receive the maximum amount of your loan in one payment at the closing. This would allow you to make a large purchase, gift the money to someone or invest it. Remember, there are no restrictions on how you use the funds.
Third is a Line of Credit. The Line of Credit works just the same as a regular Home Equity Line of Credit. The funds are available whenever you need them and for any purpose. In most Reverse Mortgages the unused balance of the loan will continue to grow year after year. The less you use, the more that will grow and be available later.
You can also combine any two or three methods as needed. You might decide to take some cash up front at the closing to pay for large expenses. You could also have a monthly cash flow and have the remaining amount available as needed in a Line of Credit.
Will I Qualify For a Reverse Mortgage?
Qualifying for a Reverse Mortgage is quite different than qualifying for a traditional mortgage. There is a new financial assessment required by FHA. This assessment will look at the borrowers income to determine if they have enough income to pay the property taxes and insurance in the future. Mortgagees are required to perform a thorough financial assessment of prospective borrowers which includes amongst others, an analysis of the mortgagor’s credit history, liabilities, and other debts (see e.g. ML 2014-22).
Any existing mortgages will need to be paid off, or may be paid with the new Reverse Mortgage. Any tax liens will be required to be paid off as well.
To qualify for a Reverse Mortgage you must:
- Be 62 years of age or older
- Have equity in your home
- Meet financial assessment requirements
- Live in your primary residence
- Pay off all current liens on the property
- Living Trusts are allowed
When is the loan due?
The loan is due whenever you no longer occupy the home. This could be when you sell the home or move to another residence. The loan also may be called due and payable in the event you do not comply with the loan terms, such as paying property taxes and insurance and costs associated with maintenance.
Of course upon your death your home is passed to the heirs of your choice and the reverse mortgage comes due. Your heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, they will keep any excess sales proceeds. Federal regulations allow for a generous amount of time to satisfy the loan. You will not be leaving your loved ones with any extra burden as a result of having a reverse mortgage.
It is also important to remember that your reverse mortgage is a non-recourse loan. Neither you nor your heirs will be responsible for any shortfall from the sale of the home as long as it is offered at market price. If your loan is a Home Equity Conversion Mortgage (“HECM”), the reverse mortgage debt may be satisfied by paying the lesser of the mortgage balance or 95% of the current appraised value of the home.
What is the process to receive a Reverse Mortgage?
The first and most important step is education and research. Learn as much as you can from various websites and printed material. We have many other resources available to you as well as printed Literature we will send you for free as well as a very informative DVD. We also invite you to attend one of our upcoming seminars where we will provide more information and give everyone the opportunity to ask questions.
When you feel you have collected enough information to take the next step you can call me for a confidential consultation. We will meet in person and I will provide you with additional information and answer all you questions to assist you making a decision.
If you should make the decision to apply for a Reverse Mortgage your next step is to set an appointment with an independent HUD-approved counselor. I will provide you with a list of approved counselors for the loan you have chosen. Some counselors require you to meet with them in person while other counseling is available by phone.
Once your counseling is complete we meet again so you can sign your loan application documents. As soon as we have the signed papers our processor will order your appraisal, title report and all services needed to submit your loan application to the underwriter.
The underwriter compiles all the information we have gathered and makes sure you qualify for a Reverse Mortgage. If the underwriter approves your application, you then must decide how you will take your payments. Once you have decided, we can order your closing documents and schedule a time for you to sign the documents when they are prepared. You should allow six to eight weeks from the start of the process until your Reverse Mortgage Loan funds become available to you.