All About Reverse Mortgage Loans
Reverse Mortgage Loans: Even though they have been around for a while, Reverse Mortgage Loans are gaining in popularity due to the current economic environment. Some seniors can no longer cover their monthly expenses due to investment losses and rising costs.
According To Wikipedia:
Reverse mortgage loans are loans available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care).
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender.
In a reverse mortgage loan, the home owner makes no payments (Borrower still responsible for taxes and insurance). We were recently told that the CFPB is requesting this be added directly after any mention of no monthly payment on reverse mortgage content.and all interest is added to the lien on the property.
If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
Reverse Mortgage Loans Highlights:
- Must be at least 62 years old
- House must be primary residence
- Mortgage must be either fully paid or have a small balance
- No income or credit score requirements
- Payment can be a lump-sum, monthly cash payout, line of credit held in reserve, or combination of all three
- In many states can use proceeds for purchase of a new home
Reverse mortgage loans can be a good alternative for seniors struggling with monthly bills, yet sitting on a significant amount of equity in their homes.
Frequently Asked Questions About Reverse Mortgage Loans:
Q: Can the lender take my home away if I out live the loan?
No. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. Another safeguard is that the borrower will never owe more than the value of the property at the time it is sold.
Q: How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.
Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
Q: Will I still have an estate that I can leave to my heirs?
When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
Note: Borrower is still responsible for taxes and insurance. This ad is not from HUD or the FHA and was not approved by HUD or any government agency.
Q: How do reverse mortgage loans affect my government benefits?Generally, a reverse mortgage does not affect regular Social Security or Medicare benefits. However, needs-based benefits like Medicaid or Supplemental Security Income (SSI) may be impacted.
The reverse mortgage loans proceeds you receive could be considered income or an asset, potentially affecting your eligibility for these programs.
It's advisable to consult with a financial advisor or benefits specialist to understand how a reverse mortgage might affect your specific situation.
Q: Are there any fees associated with getting a reverse mortgage?Yes, there are typically several fees involved in obtaining a reverse mortgage. These may include an origination fee, closing costs, mortgage insurance premiums, and servicing fees.
Some of these fees can be financed as part of the loan, reducing your out-of-pocket expenses.
However, this will also reduce the amount of funds available to you from the reverse mortgage. It's important to carefully review all fees with your lender and compare offers from multiple lenders to ensure you're getting the best deal.
Q: Can I get a reverse mortgage if I still owe money on my existing mortgage?Yes, you can still qualify for a reverse mortgage if you have an existing mortgage on your home. However, the reverse mortgage must be the primary lien on the house.
This means that you would need to use part of the proceeds from the reverse mortgage to pay off your existing mortgage.
If your current mortgage balance is relatively high, this could significantly reduce the amount of money you'll receive from the reverse mortgage.
In some cases, if the existing mortgage balance is too high, you may not qualify for a reverse mortgage or may need to bring additional funds to closing to pay off the existing mortgage.