Reverse Mortgage Advantages & Disadvantages Guide
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- A home loan designed to meet the needs of retirees on fixed income
- Funds borrowed require no monthly mortgage payments
- Use this tax-free cash for virtually anything (supplement social security income, pay for long term care etc.)
- Loan is repaid when the last surviving borrower passes away or sells home
- Any remaining equity in belongs to your heirs or estate
- Higher initial setup costs when compared to traditional home loans
- Ongoing mortgage insurance charges (MIP)
- May affect needs based programs (SSI, Medicaid)
- Becomes due if you leave home permanently
- Less equity for heirs
Table of Contents (click to navigate)
- All Reverse Mortgage, Inc. – The lender you can trust
- Introducing our reverse mortgage products
- Find out if you’re eligible and how you could use your loan proceeds
- Reverse mortgage loan factors and access options
- Your responsibilities as a borrower
- Understanding loan maturity and repayment
- Fees associated with a reverse mortgage
- Is a reverse mortgage right for you? - Weight potential drawbacks.
- Understanding the loan process
- Questions & answers
- General terms
All Reverse Mortgage – Your Stable and Trusted Lender
Industry-leading expertise from a reverse mortgage loan officer
Personalized solutions for our customers
Consistently high ratings from past
Introducing Our Reverse Mortgage Products
Here’s a flexible solution that helps you enjoy a stable retirement. Designed for homeowners age 62 and older, a reverse mortgage lets you:
- Access a portion of your available home equity whenever you need it and use it in a variety of ways.
- Continue to live in your home with no monthly mortgage payments.
- Retain the title to your home.
- Finance most of the loan’s fees so there are minimal out-of-pocket expenses.
- Choose how you want to receive your loan proceeds: lump sum, monthly installments, a line of credit or a combination of these options.
- Access additional loan proceeds with an annual credit-line increase (amount varies by product).
- Buy a new home.
Find Out if You’re Eligible and How You Could Use Your Loan Proceeds
HUD Requires borrowers to qualify for the loan but they give lenders a number of ways to meet qualifications.
To be eligible:
- All borrowers must be titleholders and age 62 or older (spouses under 62 in most states are now also protected - ask your Loan Officer).
- You must have equity in your home.
- Generally, the home must be paid off or have a very strong equity position (the younger you are, the more equity you need). Existing loans must be paid in full with reverse mortgage proceeds or with another acceptable source of cash at your disposal.
- Your home must be a single-family home, a 2-4 unit home, a condominium, a planned unit development (PUD) or a modular home. Manufactured homes are eligible in some circumstances. Mobile homes are not eligible.
With a reverse mortgage, you can eliminate debt and help take care of everyday expenses
- Pay off an existing mortgage or other debts.
- Cover medical care, prescriptions and long-term care expenses.
- Purchase a new home (down payment required).
- Modify your home for better accessibility.
- Make home improvements and repairs.
- Help family members in need.
Reverse Mortgage Loan Factors and Access Options
|Age of borrower(s)||Greater loan amounts may be available for older borrower(s).|
|Appraised home value||Greater loan amounts may be available for higher value homes.|
|Interest Rates||Greater loan amounts may be available with lower interest rates.|
Choose from several access options
|Lump sum||Immediately withdraw all or part of your available credit up to HUD-allowable limits.|
|Monthly installments||Receive regular cash installments in the amount you choose.|
|Line of credit||Withdraw from your line of credit when you need it. For any withdrawal, you can draw as little or as much as you want within your credit limit- again, subject to HUD payout criteria.|
How Do You Get Your Funds?
Proceeds Electronically Transferred to your account
Your Responsibilities as a Borrower
Potential effect on taxes, insurance and government aid
|Property taxes||When you get a reverse mortgage, you still own your home and are responsible for all property-tax payments. You may use the proceeds from a reverse mortgage to help make these payments. It is very important that you keep your taxes current because the loan may become due if they are not paid.|
|Government aid programs||Reverse mortgages do not affect entitlement programs such as Medicare. However, certain need-based government aid programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected (especially if proceeds are allowed to accumulate in bank accounts). We recommend that you consult your Medicare, Social Security or Medicaid program administrator to determine the specific rules.|
|Insurance||Since you own your home, you continue to be responsible for maintaining an acceptable amount of property insurance, including flood insurance where necessary.|
Understanding Loan Maturity And Repayment
Circumstances that could cause your loan to become due
Loan amount owed
You or your heirs decide to sell the home
|Scenario 1||If the loan balance is less than the appraised home value or sale price, you or your heirs only owe the loan balance. As a result, you or your heirs keep the difference between the sale price and the loan balance, less sales costs.|
|Consider this example:||When Sandra gets a reverse mortgage from All Reverse, her home is appraised at $300,000, and she is eligible to receive $150,000. After many years, Sandra decides to sell her home. At this time, her home is appraised at $350,000. Based on her withdrawals and accrued interest, the loan balance is $250,000. Sandra sells the home for $350,000 and is only responsible for paying the loan balance of $250,000. She keeps the remaining proceeds of $100,000 (calculated as the sale price of $350,000 minus the current loan balance of $250,000), less sales costs. Sandra has had to make no mortgage payments during this time.|
You or your heirs decide to keep the home
|Scenario 2||If the loan balance is greater than the appraised home value, you or your heirs will only owe the appraised home value or all proceeds from the sale.|
|Consider this example:||When Pat gets a reverse mortgage from All Reverse, her home is appraised at $200,000, and she is eligible to receive $100,000. After many years, Pat passes away. At this time, her home is appraised and sold at $215,000. Based on her withdrawals and accrued interest, her loan balance is now $225,000. Pat’s heirs sell the home for $215,000 and pay off the loan. Nothing more is due. Or perhaps Pat’s heirs decide they do not want to sell the home under these circumstances. They can walk away with no obligation because the loan is a “non-recourse loan” and they will owe nothing. But there is also a twist here, suppose the heirs want to keep the home when more is owed than it is worth? They can also choose to pay off the existing loan at just 95% of the current market value and keep the home, even though that amount is less than what is owed.|
Two basic ways you can pay off your loan balance
- Selling the home and using the proceeds from the sale. Note that a sale price of less than the amount owed may require approval at that time.
- Using other sources of funding, including checking and savings accounts, investments and brokerage funds, sale of real-estate assets or funds from a new mortgage on the home.
Fees Associated With a Reverse Mortgage
Below is a summary of the fees you can expect:
|Origination Fee||A fee paid at origination that covers operating expenses to set up the loan - compare from lender to lender.|
|Counseling Cost||FHA and many states require that all prospective borrowers attend counseling with a HUD approved counselor. This session is required to ensure prospective borrowers understand how a reverse mortgage works and to help them determine whether it is a solution that meets their needs. The cost of counseling varies, it will be determined by the counselor and may be provided at no cost.|
|Closing Costs||A fee paid at origination, including all third-party-vendor costs. Closing costs may include an appraisal, title search, flood certification, title insurance and flood insurance where necessary.|
|Servicing Fee||A fee used to cover the cost of servicing the loan. Costs may include monthly statements, insurance and tax verification, periodic property-maintenance inspections, and processing of withdrawals and other requests. The requirement of this fee is subject to market costs/conditions and may not be charged.|
|Mortgage Insurance||The borrower will be charged a mortgage insurance premium (MIP) to reduce the risk of loss to the Department of Housing and Urban Development (HUD) or the lender in the event of default or loss due to value. The MIP has both an Initial payment based on the property value and an annual renewal based on the outstanding loan balance.|
Reverse Mortgage Disadvantages
When a reverse mortgage (or all options) may not be right
- You are considering moving within a few years and you are considering a loan with high initial fees (is there a loan available with very little initial cost?)
- You want to leave your home to your heirs, and they will not/cannot pay back the loan balance with other funds or financing.
- You are looking for funds to invest in risky or annuity type investments that tie funds up with potential loss of principal if you need those funds.
Discuss your decision with affected parties
- Staying in your home
- Maintaining financial independence
- Retaining the title to your home
- Loan-repayment requirements
- Estate planning and inheritance
- Impact on government aid
Discuss reverse mortgage products with professionals
|Accountant||Income taxes, tax deductions, capital gains tax, property taxes|
|Attorney||Estate planning, tax planning|
|Financial Planner||Retirement planning|
Talk with a third-party counselor
Before moving forward with a reverse mortgage application, you will need to talk to an independent third-party HUD-approved counselor. The counselor will make sure you fully understand your options. More information about this important FHA requirement is located on page 14.
Understanding The Loan Process
|Before you apply, it is important to discuss reverse mortgage products with family, friends and trusted advisors. Once you have determined that a reverse mortgage is an option for you, please contact your reverse mortgage loan officer. You have probably already been given a list of local HUD approved counselors and any other documents that may be required for counseling, and you can choose anyone from the list or from the HUD website.|
|Next, you will speak with an independent third-party reverse mortgage counselor, who will review the reverse mortgage product and documents with you to make sure you understand how reverse mortgage products work and explain your alternatives. The session typically lasts at least an hour and may be conducted in person or over the phone (some states require in-person counseling). The cost of counseling varies and will be determined by the counselor.|
|After you complete the counseling session and have been issued a certificate of counseling, if you have not already gone onto our secure, encrypted website to request your loan application, you can do so at this time and we will send it to you via overnight delivery with an envelope to return it the same way. Don’t have a computer? No problem! We can take the information verbally in about 7 minutes on the phone and still send your package out quickly. Once you return your signed application and counseling certificate to this office we can begin the loan processing.|
|An appraiser will visit your home and assess its exterior and interior condition, as well as compare the property to other homes recently sold in your area. Remember that in 2010 Dodd-Frank passed Appraiser Independence Rules that do not allow you or even your loan originator to choose the appraiser. An independent Appraisal Management Company will hire the appraiser and All Reverse cannot influence the valuation process, by Dodd-Frank rules and by Federal Law! Once complete, we will provide you with your appraised home value and confirm the amount of loan proceeds you are eligible to receive. A helpful appraisal checklist can be found here.|
|Once you have met all the conditions of the loan, a closing date and location will be scheduled. Most borrowers sign in the comfort of their own homes. A closing agent will present all of the necessary loan documents for you to sign and provide you with a copy of your package. After all of the documents are signed, you will have three business days to cancel the loan, should you decide to do so on refinance transactions.|
|After the completion of a three-business-day right to cancel period, the loan proceeds you requested will be wired to your account that you supplied.|
Questions & Answers
Q: What is a reverse mortgage?
A reverse mortgage is a home loan that allows you to access a portion of your available home equity and use the proceeds, which may be tax-free (not intended to be tax advice, please consult a tax advisor, payment of property taxes is still required), for the things you need. With this type of loan, no monthly mortgage payment is required for as long as you continue to live in the home or until a maturity event occurs.
Q: Who is eligible for a reverse mortgage?
Q: What types of homes are eligible?
Q: What if I have an existing mortgage?
Q: How much of my home’s equity can I access?
Q: Will I still own my home?
Q: Are there homeowner’s insurance and property tax requirements?
Q: What are the costs for reverse mortgage products?
Costs for reverse mortgage products include origination and processing fees, third-party closing costs (just like a first mortgage) and possibly a monthly servicing fee and mortgage insurance premium. Many of these costs can be financed with the loan, and may vary depending upon which product you select. There is also counseling required for which you may have to pay a fee.
Q: How can I use the loan proceeds I receive?
Q: Can I use the loan proceeds from a reverse mortgage to purchase a home?
Q: Are the proceeds I receive taxable?
Q: How will I access the available proceeds from my reverse mortgage?
Q: Will I have to make monthly payments?
Q: When will the loan become due?
Your loan remains active as long as you live in the home as your primary residence, retain the title to your property, and do not reside elsewhere for 12 consecutive months. You must maintain your home in good condition and continue to pay ongoing property insurance premiums and all applicable property taxes or assessments, including homeowners’ association charges. In the event these and other conditions are not met, it may cause your loan to become due and payable in full.
Q: Will my heirs or I have to sell my home when the loan becomes due?
When the loan hits a maturity event (none of the original borrowers still live in the home or other default), the loan becomes due and payable. At this time your heirs have the option to sell the home, pay off the loan and keep the home or choose to walk away. The loan is non-recourse so the lender can never look to other assets to repay the loan.
Also See: Heirs and Loan Maturity
Q: Who will help me through this process?
Glossary of Terms
the All Reverse Mortgage® advantage
How Can We Consistently Beat The Top Reverse Mortgage Lenders?
- Reverse mortgages are all we do – for over a decade!
- We are a HUD Approved direct lender.
- We do not work with Brokers which allows us to pass savings on to you.
- We don’t hire "celebrity" spokespersons because we do not believe you should have to pay for a lender’s expensive marketing budget with higher loan costs.
- Compare our impeccable reviews and independent ratings with any competitor.
- We put you and your needs first with superior service and lower costs.
"Highest Score of Any Major Reverse Mortgage Lender: 97% vs 78% Industry Average" - BBB
"Top 6 Reverse Mortgage Lenders of 2016-2017" - Advisory HQ
"The Maverick is All Reverse Mortgage" - Huffington Post 2014
"Best Reverse Mortgage Website" - Professor Guttentag aka The Mortgage Professor 2013
"Best Reverse Mortgage Brand" - Reverse Mortgage Daily Awards 2011
- Here are the Downsides of a Reverse Mortgage in 2020
- 4 Times a Reverse Mortgage is a Good Idea (or even great!)
- 4 Times a Reverse Mortgage is a Bad Idea (or even terrible!)