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Reverse Mortgage Facts


The History of Reverse Mortgages
Since the first Reverse Mortgage loan was issued in 1961, usage of this powerful financial product has steadily risen throughout the decades. Today, more Reverse Mortgage loans are obtained than ever before. The U.S. Department of Housing & Urban Development (HUD) exspects to endorsed over 200,000 Reverse Mortgages by the end of 2008!.


About Reverse Mortgage Products
While there are several Reverse Mortgage products on the market today, The Home Equity Conversion Mortgage (HECM) is the oldest and most popular product from the Federal Housing Administration (a division of the U.S. Housing and Urban Development department (HUD). The (HECM) represents nearly 90% of all reverse mortgages.


About HUD Counseling
All HECM borrowers must receive independent third-party counseling over the phone or in person. HECM counselors will discuss program eligibility requirements, financial implications and possible alternatives to obtaining a HECM. This includes provisions for the mortgage possibly becoming due and payable. Upon the completion of HECM counseling, the homeowner receives a certified counseling certificate and should be able to make an independent, informed decision of whether this product will meet their family needs.

*90% of all loans are HECMs (Home Equity Conversion Mortgages)

Call : 800-206-9495

If you are considering a Reverse Mortgage you must meet the following qualifications.
Borrower Requirements

  • Age 62 years or older
  • Own your property
  • Occupy your property as primary residence

Participation in a consumer information session given by an approved HECM counselor

Frequently Asked Questions


1. What is a reverse mortgage?

Q. What is a reverse mortgage?
A. A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income—without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower (s) permanently leaves the home.

*Always consult your tax advisor

2. What are the advantages of a reverse mortgage?

Q. What are the advantages of a reverse mortgage?
A. There are many. Here are a few of the most significant:

  • Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership.
  • Stay in your home. It allows you to remain in your home and retain home ownership.
  • No monthly mortgage payments. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
  • Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
  • Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.

* Consult Tax Advisor

Q. I’ve heard that with a reverse mortgage the lender would own my home. Is this true?
A. It’s absolutely false. The borrower retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.

Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses — just as they would with a standard first mortgage or home equity loan.

Q. Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?
A. Yes. Refinancing can make sense if your home increases in value or interest rates drop.

Q. Is it possible for my loan balance to become greater than the value of my home?
A. No. You can never owe more than what your home is worth. What’s more, since the reverse mortgage is what is known as a "non-recourse" loan, the lender cannot seek repayment from your income, your other assets, or your estate. In other words, the house stands for the debt.

Q. Can a reverse mortgage lender take my home away if I outlive the loan?
A. No they cannot. And the loan is not due at that time either. In fact, you don’t need to repay the loan as long as you or another borrower continues to live in the house and keep the taxes paid and insurance in force.

3. How much money can I get?

Q. How do you determine the amount of cash I am eligible for?
A. The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, and the appraised value of your home and FHA's lending limits for your area. In most cases, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

4. How does a reverse mortgage differ from a home equity loan?

Q. How is a reverse mortgage like a home equity loan? How is it different?
A. Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash.

They differ in that with a home equity loan you must make regular monthly payments of principal and interest. However, with a reverse mortgage you do not make any monthly mortgage payments for as long as you stay in the home.

5. How can I use the money I get from a reverse mortgage?

Q. Are there any limits on how I use the money I receive from a reverse mortgage?
A. You can use the money for anything you choose, from daily living expenses, home improvements, healthcare expenses, paying off existing debts, or simply enhancing your retirement years. For many people, the money provides a "financial security blanket," in case unexpected expenses arise.

Q. Can my current income influence my ability to get a reverse mortgage?
A. No. Since reverse mortgage borrowers need not make monthly repayments, there are no income qualifications.

6. When must a reverse mortgage loan be repayed?

Q. When will I have to pay the principal and interests cost of this loan?
A. Your reverse mortgage loan becomes due and must be paid in full when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems.

7. Are there tax consequences? What about my Social Security and Medicare benefits?

Q. What are the tax consequences of a reverse mortgage? What about my Social Security and Medicare benefits?
A. Because reverse mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.

If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as "liquid assets" if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.

Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely.

Q. If I take on a reverse mortgage, how will it affect my government benefits?
A. The funds from a reverse mortgage do not affect regular Social Security or Medicare benefits. You should discuss the impact of a reverse mortgage on federal,state or local assistance programs with a professional advisor, an independent reverse mortgage consultant*, or a tax attorney.

8. What are the costs and fees?

Q. Other than repaying the principal and interest, what kinds of fees are involved in a reverse mortgage?
A. Most reverse mortgages have an application fee (which may cover the cost of a credit report and an appraisal), an origination fee, closing costs, insurance, and a monthly servicing fee. These charges can be paid by the reverse mortgage itself, making them no immediate burden to the borrowers; the costs are added to the principal and paid at the end, when the loan becomes due.

Seniors Equity Exchange offers a Cash Account Plan, with no upfront costs – no origination fee, no application fee, and no closing costs.

Q. How much cash will I have to come up with to cover origination fees and other closing costs?
A. One of the real benefits of a reverse mortgage is that you can use the money you get from your home’s equity (dependent upon final calculations) to pay for the various fees that are part of the loan costs overall. The costs are simply added to your loan balance, and you pay them back, plus interest, when the loan becomes due—that is when the last surviving borrower permanently moves out of the home or passes away.

Q. Are reverse mortgage interest rates fixed or variable?
A. All reverse mortgages have variable rates that are tied to a financial index and will vary according to market conditions.

Q. What is "TALC" and why should I know about it?
A. TALC is short for "Total Annual Loan Cost." It combines all of the costs of a reverse mortgage into a single annual average rate and can be very useful when comparing one type of reverse mortgage to another.

Reverse mortgages vary considerably in features, benefits, and costs. It’s not always easy to compare "apples to apples." If you are considering a reverse mortgage, be sure to ask the lender or counselor to explain the TALC rates for the various reverse mortgage products.

9. How will a reverse mortgage affect my estate?

Q. If I take a reverse mortgage, will I still have an estate that I can leave to my heirs?
A. When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs. It’s important to remember that you can never owe more than the home's appraised value when it is sold. None of your other assets will be affected by your reverse mortgage loan.

10. What advice should I get before taking a reverse mortgage?

Q. I understand that I must meet with an unbiased counselor before completing my reverse mortgage application. What does that accomplish?
A. This is a federally mandated feature of the reverse mortgage process and is designed for your protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pro's and con's of all your reverse mortgage alternatives. He or she will discuss a reverse mortgage’s costs and financial implications, should tell you about any government or nonprofit programs for which you may qualify, and advise you on any proprietary reverse mortgages that may be available in your area.

Q. Must the heir or the last surviving borrower sell the property to repay the reverse mortgage loan?
A. No. Repayment may be accomplished by refinancing the reverse mortgage with a traditional "forward" mortgage loan, or through the use of other assets

 

To view a summary of available Reverse Mortgage Options, please fill out the form below.

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