HECM stands for Home Conversion Equity Mortgage?
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Both spouses on title must be 62 or older to qualify for a reverse mortgage?
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Industry
News
The FHA
HECM Reverse Mortgage Loan Limits have recently
been raised to $417,000 nationwide.
This change just signed into law now offers
many more senior homeowners around the U.S.
the opportunity to access more equity in
their homes with a reverse mortgage.
Frequently
Asked Questions
About Reverse Mortgages
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.
* Consult Tax Advisor. Not all products
are available in all states.
2.
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.
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.
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 Your 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.
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.
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.
6.
In what ways can I receive the money from a reverse mortgage?
Q.
Is there a choice in how I receive the cash from my reverse mortgage? A. Most definitely. With most reverse mortgages
you have a wide range of payment options, one of which should be
ideal to meet your financial needs.
You
can choose to receive the money all at once, as a lump sum.
You
can receive equal monthly payments as long as one of the borrowers
lives and continues to occupy the property as a principal residence.
You
can choose to receive equal monthly payments for a fixed period
of months.
You
can get a line of credit*; which allows you to take funds at times
and in amounts of your choosing until the line of credit is exhausted.
This is the most popular option, chosen by more than 60% of reverse
mortgage borrowers.
You
can opt for a combination of line of credit with monthly payments
for as long as the borrower remains in the home.
Or,
finally, you can choose a combination of the above.
*
Note: in Texas, lines of credit are not permitted by state law.
7.
What requirements or restrictions are involved in the reverse mortgage
process?
Q.
Who can qualify for a reverse mortgage? A. Seniors 62 years of age or older qualify. There
are no income, health or credit qualifications.
Q.
I still owe money on a first or second mortgage. Can I still get
a reverse mortgage? A. Yes. You may be eligible for a reverse mortgage
even if you still owe money on a first or second mortgage. The funds
you would receive in the reverse mortgage would be used to pay off
whatever existing mortgages you have on the property.
Q.
Can I get a reverse mortgage on a second home or resort property
I own? A. Unfortunately no. Reverse mortgages may only
be taken out on your primary residence.
Q.
What kinds of homes are eligible for a reverse mortgage? A. First and foremost,
the reverse mortgage must be on the borrower(s)
primary residence, that is, where they live
most of the year. Most reverse mortgages
are taken on single family, one-unit homes.
Some programs also accept two-to-four unit
buildings that are owner-occupied. Some
programs grant reverse mortgages on condominiums
and manufactured homes built after June
1976. Mobile homes and cooperatives are
generally not eligible for a reverse mortgage.
Click
here to contact Kathy Richmond at Mortgage
South to determine if your home is
eligible.
Q.
Would a home that is in a "living trust" be eligible for a reverse
mortgage? A. Yes. In most cases a homeowner who has put his
or her home in a living trust can usually take out a reverse mortgage.
A review of the trust documents would be made by the reverse mortgage
lender to determine if anything in the living trust would be unacceptable.
Q.
Are all reverse mortgages the same? A. No, actually there are three basic types of
reverse mortgages:
Federally-insured
reverse mortgages. Known as Home Equity Conversion Mortgages
(HECM), they are insured by the U.S. Department of Housing and
Urban Development (HUD). They are widely available, have no income
requirements, and can be used for any purpose. (For more information
on HECM reverse mortgages, click
here.)
Proprietary
reverse mortgages. These are private loans with unique
features that appeal to certain kinds of borrowers. An example
of such reverse mortgages, which are backed by the companies that
develop them, is Countrywide's SimpleEquity Mortgage.
Q.
What are the main differences between a HECM reverse mortgage and
a proprietary product like the Countrywide SimpleEquity Mortgage? A. In general, the HECM product may offer a higher
loan amount for a lower valued home (for example, under $500,000)
depending upon the loan amount caps in specific counties/MSAs, the
amount of equity in the home, and the age of the borrower. For a
higher valued home with significant equity, a senior may be likely
to qualify for a larger cash payout through a SimpleEquity reverse
mortgage. Another benefit is that there are no origination fees
and closing cost options available, as well as no mortgage insurance
premiums and lower monthly servicing fees.
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.
10.
What is owed when a reverse mortgage loan is repaid?
Q.
What has to be repaid when the loan becomes due? A. When the last surviving borrower permanently
moves out of the home or dies, the reverse mortgage loan becomes
due. The reverse mortgage principal, interest charges, and service
fees (such as closing cost fees) are paid from sale of the house
or other assets of the 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.
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.
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 from the proceeds of the reverse
mortgage, resulting in no immediate burden to the borrowers; the
costs are added to the principal and paid with interest when the
loan becomes due.
Q.
How much cash will I have to come up with to cover origination fees
and other closing costs? A. One of the many 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. Most reverse mortgages extended to seniors to
date 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.
13.
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, such as your local Area Agency
on Aging (toll free at 1-800-677-1116), an independent reverse mortgage
consultant*, or a tax attorney.
* A list of approved counseling agencies
is posted on the Internet by the U.S. Department of Housing and
Urban Development, at www.hud.gov.
14.
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.
