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Reverse mortgage loans have changed a lot over the years. Today’s reverse mortgage loan has many layers of consumer protections, making it one of the safest loans available. Unfortunately, there’s a lot of confusion over reverse mortgage loans, and here are the most commonly asked questions.
What the heck is a HECM?
The FHA Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage. It is insured by the United States Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA). The insurance provides protection to borrowers who comply with the terms of the loan by guaranteeing they will always have access to the funds from their reverse mortgage, no matter what happens to the lender servicing it. It also guarantees they will not owe more than the home is worth.
Would I qualify for a reverse mortgage?
Here’s what’s required for a Home Equity Conversion Mortgage (HECM):
- The minimum age is 62. Younger spouses can still be on the title.
- The home must be the borrower’s primary residence.
- There must be sufficient home equity. Contact a Retire Right Mortgage Agent to learn if you have enough equity to qualify.
- The home must meet Federal Housing Administration (FHA) property standards.
- The home must be one of the following types of property: single family residence; a two-to-four unit home; or a condominium located in a HUD-approved community.
Does the bank or lender own my home if I get a reverse mortgage?
No. The lender will record a deed of trust on your title so the loan is secured by your home, just like a regular mortgage. As long as you meet the terms of the loan, like paying property taxes, homeowners insurance, and other property charges, you will retain ownership. If you decide to sell your house, you will receive any remaining equity in cash after the reverse mortgage loan is paid off. When you leave your home to your heirs, they may refinance or pay off the reverse mortgage or decide to sell the house and keep any remaining proceeds after the reverse mortgage loan is paid off.
How much equity do I need to qualify for a reverse mortgage?
This will vary depending on current interest rates and the ages of the homeowners. The reverse mortgage will pay off the existing loan before any proceeds can be made available to you. You will need to have at least 30% equity and as much as 70% equity to pay off your mortgage, depending on your personal situation.
Do I have to receive monthly payments or a lump sum with a reverse mortgage?
No. Most people choose to leave their extra available funds in a line of credit that allows them to minimize interest and make a withdrawal when the time is right. But you could also choose monthly payments, term payments, tenure payments, or combination.
Does the reverse mortgage line of credit earn interest?
No, but the credit limit grows over time at the same interest rate charged on your outstanding loan balance. If you choose to leave funds available in a line of credit, the amount available to withdraw grows each year. Your credit limit will automatically increase at the same rate that your loan balance grows. Many people can become confused and think of the credit line growth as earning interest because they are gaining access to more cash over time. The credit line growth is a great feature that is often overlooked.
Do I have to stay in my house forever if I get a reverse mortgage?
No. You can sell your house any time if you have a reverse mortgage. If you decide to sell your house, you will receive any remaining equity in cash after the reverse mortgage loan is paid off. You can even purchase your next home using a reverse mortgage, using your current home’s equity as the down payment.
Can I buy a home using a reverse mortgage?
Yes! A reverse mortgage can be used to purchase a home. Your down payment will vary based on expected interest rates, the ages of the buyers, and the purchase price of the home. The down payment percentage will vary between 30% and 70% based on your particular situation.
What does it cost to get a reverse mortgage?
Typical costs include a property appraisal charge, origination fee, title insurance, closing costs, mortgage insurance premium, and a HECM counseling fee. Most of the up-front costs can be financed into the loan. The costs are similar to those of a normal mortgage. Ask your Retire Right Mortgage Agent for details on the costs that apply to your situation.
Should I wait to get a reverse mortgage?
While it is true that the initial reverse mortgage loan payout is generally larger the older you are, getting a reverse mortgage loan earlier can end up being a much smarter retirement strategy. For example, the proceeds could be used to delay taking social security benefits, protect investments in down markets, fund comprehensive retirement plans, or establish a line of credit where unused funds are guaranteed to grow.
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Link to: Myths & Facts
Myths and Facts
There are many myths out there. Learn the facts before making a decision.
Link to: The Process
The Process
Here are the major steps you’ll need to follow when applying for a reverse mortgage.
*This advertisement does not constitute tax advice. Please consult a tax advisor regarding your specific situation. The homeowner is still responsible for paying property taxes, homeowner’s insurance, applicable association dues, and for maintaining the property.