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The reverse mortgage is
an excellent financial planning tool that has been used by homeowners from all
walks of life to enhance their retirement years. However, there are many misconceptions
and I hope this site will help you better understand the reserve mortgage.
The source of the following is The National Reverse Mortgage Lenders Association
(NRMLA). 1.
Am I eligible for a reverse mortgage? 2.
How much money can I get?
3. What are my payment options?
4. How much does a reverse mortgage cost?
5. Do I need to get an appraisal of my home to get a reverse mortgage?
6. Do I need a lawyer to apply for a reverse mortgage?
7. Am I required to receive counseling before I get a reverse
mortgage?
8. Is the money from a reverse mortgage taxable income?
9. Will the money from a reverse mortgage affect my Social Security
benefits or other government benefits?
10. Are there any limits on how I can use the funds from a reverse
mortgage?
11. What is the interest rate on a reverse mortgage and how is
it determined?
12. Who owns title to my home while my reverse mortgage is outstanding?
13. Am I required to pay anything during the course of the reverse
mortgage loan?
14. How much will be owed when my reverse mortgage comes due?
15. What happens if I move out of my house
after I get a reverse mortgage?
16. What happens when my house gets passed to my heirs?
17. Where can I get a reverse mortgage? <Answers> 1.
Am I eligible for a reverse mortgage? - To
qualify for a reverse mortgage, you must:
Be at least 62 years old. In the
case of a couple or co-owners, both must be 62, if their names appear on the title
to the home. - Be
a homeowner with equity in your home. Single-family homes and qualified condominiums,
townhouses, manufactured homes, and 1-4 unit owners-occupied residences are eligible.
2. How
much money can I get? This
depends on a few factors, including your age at the time of loan closing, the
value of your home, the amount of built-up home equity, and interest rates at
the time of origination. Other factors are the type of reverse mortgage product
and particular payment option you select. Calculators that can help you estimate
how much you could receive under different products and payment options are available
at www.ReverseMortgage.org, and from reverse mortgage lenders and counselors.
3. What
are my payment options? You
decide how to receive the money generated by a reverse mortgage. In general, your
payment options are: - An
upfront lump sum payment
- Line
of credit
- Fixed
monthly payments for as long as you remian in your home (or a predetermined, shorter
period)
- A combination
of monthly income and line of credit
4. How much does a reverse mortgage cost? Many
of the same costs of home purchase mortgages apply to reverse mortgages. You can
expect to be charged an origination fee, an upfront mortgage insurance fee, an
appraisal fee, and certain other standard closing costs. In most cases these fees
and costs are capped and may be financed as part of the reverse mortgage.
5. Do I need to get an appraisal of my home to get a reverse
mortgage? Yes.
Since the value of your home is a factor in determining how much money you can
get from a reverse mortgage, an appraisal is required.
6. Do I need a lawyer to apply for a reverse mortgage? Legal
counsel is not required. However, NRMLA encourages you to seek the advice of a
legal, tax, or financial advisor before committing to a reverse mortgage.
7. Am I required to receive counseling before I get a reverse
mortgage? Yes.
Counseling, one of the safeguards of reverse mortgages, is required before you
can obtain a loan. Counseling is an educational session at which you are informed
about reverse mortgages and your other options. You can get the name of a local
counseling agency or qualified telephone counselor from a reverse mortgage lender
or by calling AARP (1-800-424-3410), or HUD's Housing Counseling Clearinghouse
(1-888-466-3487).
8. Is the money from a reverse mortgage taxable income? Funds
from a reverse mortgage are tax-free; it's your money, not additional income.
9. Will
the money from a reverse mortgage affect my Social Security benefits or other
government benefits? A
reverse mortgage does not affect regular Social Security or Medicare benefits.
However, if you receive a lump sum payment from a reverse mortgage, any amount
retained the month after you get it would count as a resource and could affect
Medicaid eligility. To assess the impact, if any, on other federal or state assistance
or medical programs, you may wish to consult with your local Area Agency on Aging
(to locate, call 1-800-677-1116, or visit http://eldercare.gov), a reverse mortgage
lender, or a tax attorney.
10. Are there any limits on how I can use the funds from a
reverse mortgage? No.
Borrowers have spent the funds from reverse mortgages for a variety of purposes.
Among these have been to pay health care expenses, supplemental retirement income,
home improvements, home modifications, higher education, gifts to others, and
long term care insurance premiums. Some have used a reverse mortgage to purchase
recreational vehicles, start a small business, and travel the Amazon. Some have
used reverse mortgages to eliminate expenses by paying off mortgages and credit
card debt. The only limit on how you use a reverse mortgage is your imagination.
11. What is the interest rate on a reverse mortgage and how
is it determined? The
interest rate varies by type of reverse mortgage. - For
the HECM, the most popular product, the interest rate is adjusted either monthly
or annually (the borrower chooses) based on an index called the "1-Year U.S.
Treasury Constant Maturity Rate," which changes weekly.
- For
monthly adjusting HECMs, the interest rate charged on the loan for the next month
is equal to the current 1-Year Treasury rate plus 1.5%.
- For
annually adjusting HECMs, the interest rate charged on the loan for the next year
is equal to the current 1-Year Treasury rate plus 2.1%.
- For
Fannie Mae Home Keeper loans, the interest rate charged on the loan for the next
month is equal to the current "1-Month Certificate of Deposit Secondary Market
Rate" plus 3.4%.
- For
the Financial Freedom Cash Account loan, the interest rate charged on the loan
for the next 6 months is iqual to the current LIBOR rate (London InterBank Offered
Rate) plus a margin. The margin is 5.0% for the Cash Account product with the
standard benefit option and 4.0% for the Cash Account pdocust with the high benefit
option.
- The
latest 1-Year Treasury rate and 1-Month CD rate are issued by the Federal Reserve
Board, and are published along with the LIBOR rate in financial newspapers. Interest
charged on a reverse mortgage is "accrued." That is, there is no payment
of interest until the loan comes due.
12. Who owns title to my home while my reverse mortgage is
outstanding? You
retain title to your home during the period when you have a reverse mortgage,
just the same as with a regular home purchase mortgage.
13. Am I required to pay anything during the course of the
reverse mortgage loan? No.
The flow of payments is reversed during the term of the reverse mortgage - the
lending institution pays you. However, you are responsible for keeping up payments
for your homeowner's insurance and property taxes, and to maintain the condition
of your home. 14.
How much will be owed when my reverse mortgage comes due? The
amount that is owed to the lender typically includes the amount borrowed to date,
the amount of accrued interest, accrued mortgage insurance premiums (for the HECM),
servicing fees, and any other costs and fees financed as part of the loan amount.
In no event will the repayment amount exceed the value of the home at the time
that the loan comes due. There are no prepayment penalties for the current reverse
mortgage products.
15. What happens if I move out of my house after I get a reverse
mortgage? Once
you no longer occupy your home as your principal residence for more than one year,
the reverse mortgage comes due and must be repaid. Similarly, if you sell your
house, the reverse mortgage comes due.
16. What happens when my house gets passed to my heirs? Once
your home is passed to your heirs, 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 get to keep any excess sales proceeds.
17. Where can I get a reverse mortgage? Contact
Tracy Taguchi at 310-800-6333 or email: tracy@dontpayunclesam.com for a free consultation
and a quote. 
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