FAQS

A reverse mortgage is a loan available to homeowner’s who are 62 years of age or older that enables them to convert part of the equity in their home into cash.

The reverse mortgage loan program was created as a means to help retirees with limited income use the accumulated wealth in their homes to cover their basic monthly living expenses and pay for health care. As the program has matured over the years there are currently no restrictions on how reverse mortgage proceeds can be used.

A HECM reverse mortgage is a U.S. Government regulated and FHA insured home loan that allows seniors that are 62 years of age or older to access a portion of their available homes equity and use the proceeds however they so choose.

You will retain title to your home and there are no required monthly mortgage payments as long as you continue to live in your home as your primary residence or until a maturity event such as death occurs.

Home Equity Conversion Mortgage

Your home must be a single family dwelling or an apartment building that has four or less units that you own and occupy. Townhomes, detached homes, units in condominiums and some manufactured homes are eligible.

Vacation homes, secondary residences, rental properties, and properties that have more than four units do not qualify for a reverse mortgage.

In order to be eligible for a HECM Loan the borrower must meet the following requirements that have been set by the Federal Government:

• All borrower’s must be 62 years of age or older.
• The home must be your principal residence.
• The home must meet the standards set forth by HUD in regards to the property type and condition.
• Eligible property types include single family homes, 2-4 unit properties, some manufactured homes, and townhouses.

You will need to take a Financial Assessment created by HUD to determine your eligibility and if you will need a LESA Set Aside to cover your homeowner’s insurance and property tax payments. There is currently no specific credit score needed to qualify for a Reverse Mortgage.

There are several factors the determine how much money you will receive, including:

• Your age (The older you are the more money you will receive)
• The type of HECM loan program that you select.
• The current interest rates at the time that you choose to get a loan. The lower the interest rates are in the market place, the greater amount of money you will receive when you close your loan.
• The appraised value of your home.
• FHA Lending Limits.
• HUD regulates the amount of money that can be withdrawn during the first year of your loan.

In general, you can use your reverse mortgage funds for just about anything you want, without a taxable liability. Here are some of the acceptable uses for a reverse mortgage:

• Pay off existing home mortgages. This is required as part of obtaining a reverse mortgage.
• Pay medical bills.
• Pay your property taxes even if you are in arrears.
• Pay any IRS Tax Liabilities that you have neglected in the past.
• Pay off your credit cards.
• Pay for home repairs or any type of home improvements.
• You can travel.
• You can improve the quality of your life.
• You can pay for your grandchildren’s education.
• You can pay for entertainment, dining, and gifts.

The IRS currently treats monies received from a reverse mortgage to be loan advances and not taxable income. We advise you to ask a CPA in regards to any questions that apply to your specific situation.

If you are not making a mortgage payment on a monthly basis then the interest will not be deductible until you pay off the reverse mortgage. If you decide to make mortgage payments on a monthly basis, then you will be able to write off that interest on an annual basis for tax purposes.

You can receive your funds in a number of different ways:

• You can receive your cash in a lump sum.
• You can receive monthly payments. If you choose this option you need to decide whether you will receive your funds under the tenure or term payment plan.
• You can receive a line of credit.
• You can use a combination of the options listed above.

Your lender is in a first lien position and the Federal Housing Administration is in a second lien position. If your lender fails to meet it’s obligations under the terms of the loan agreement, FHA can step in and assume responsibility for the loan, so that you continue getting uninterrupted access to your funds. Both the first and second mortgage will be recorded with the county in which your property is located.

You are not earning interest like you would with a normal savings account. After the first month of your HECM loan, the principal limit increases each month thereafter at a rate equal to one-twelfth of the mortgage interest rate in effect at that time, plus one-twelfth of the monthly mortgage insurance premium rate. This growth should be considered a further extension of credit rather than an accrual of interest.

A Reverse Mortgage does not affect Social Security or Medicare benefits. However, if you are on Medicaid or Supplemental Security Income (SSI) any Reverse Mortgage proceeds that you receive must be used immediately. Funds that you retain count as an asset and could impact eligibility.
For example, if you receive $4,000.00 in a lump sum for home repairs and spend it all that same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000.00 for an individual or $3,000.00 for a couple, you would be ineligible for Medicaid. To be safe you should contact your local Medicaid Agency before moving forward with a reverse mortgage.

The surviving borrower still maintains all of the same rights and privileges that they received before the co-borrower passed away. The loan does not change and the borrower can continue to receive all of the benefits that a reverse mortgage has to offer.

Reverse Mortgages are available with either Fixed or Variable interest rates. This is one of the key features that you will be looking at when you learn about the different (HECM) Loan Programs and choose the loan program that best fit’s your needs.

No, banks and lenders are in business to earn interest on the loans that they provide. They are not in business to own your home. When you obtain a reverse mortgage the bank or lender adds a lien in the form of a reverse mortgage loan onto the title so that they can eventually collect the amount loaned plus interest.

A (HECM) reverse mortgage exists to help a homeowner to stay in their home. Provided a borrower abides by the requirements set forth by HUD as it pertains to a borrower residing in the home as their primary residence, staying up to date on their property taxes and homeowner’s insurance and maintaining the home, they cannot be foreclosed upon. However, in the event that the borrower does not adhere to these responsibilities, HUD guidelines may require the loan service provider to initiate foreclosure proceedings.

When you obtain a Home Equity Loan you must make monthly payments while you live in the home. In a(HECM) reverse mortgage your balance, including any accrued fees and interest are repaid only after you permanently leave the home because of a maturity event such as your death or your choice to sell the home. Another key difference is that the lender can never freeze or reduce your line of credit in a (HECM) reverse mortgage. The unused portion of your equity line actually grows in a reverse mortgage allowing you to have more access to credit on an annual basis.

With a reverse mortgage, you are charged interest only on the proceeds that you receive. Rates are tied to an index, such as the 1-Yr. Treasury Bill or the London Interbank Offered Rate (Libor), plus a margin that typically adds an additional one to three percentage points onto the rate that you are charged. Interest is not paid out of your available loan proceeds, but instead compounds over the life of the loan until repayment occurs.

Your heirs do inherit the home, but the reverse mortgage lien must be paid off. If your heirs wish to retain the property, then the full amount of the loan must be paid regardless of property value. The amount due at loan maturity is the principal borrowed, accrued interest, and any unpaid service fees.

A reverse mortgage is a Non-Recourse loan. The only asset guaranteeing the reverse mortgage loan is the property and not the whole estate. If the home sells for less than the reverse mortgage loan balance, the assets of the estate are not responsible for paying the difference.

The Reverse Mortgage loan has to be paid back when the last surviving borrower (or non-borrowing spouse who meets certain requirements) no longer live in the home as their primary residence or the home is sold.

You must maintain Hazard Insurance on your property in an amount that is equal to at least 100% of the insurable value of the improvements at the time of your loan closing. You must provide your loan servicer with a copy of your Hazard Insurance policy and ensure that the policy is renewed upon expiration. Failure to maintain adequate Hazard Insurance on you property is considered a Default in the terms of your loan agreement and may be grounds for calling your loan due and payable.