Reverse Mortgage Frequently Asked Questions
What is it?
The reverse mortgage is a national program available to homeowners age 62 and older providing you access your home's equity without having to make a monthly mortgage repayment. You must continue occupying your home as your primary residence and continue paying your property taxes and homeowners insurance. The most popular reverse mortgage program is called the HECM which stands for Home Equity Conversion Mortgage and is insured by the FHA (Federal Housing Administration).
How much can you qualify for?
The amount of funds available through a reverse mortgage loan is based on the youngest spouses age and the appraised value of your home. As a rule of thumb the loan to value (LTV) offered on a reverse mortgage is 40-70% of your appraised value, depending on your age. For a detailed estimate access our free online calculator.
Does the bank take title to my home?
No, you retain the same ownership and title that you have today. The reverse mortgage is just a loan like any other type of mortgage but with the extra ability to defer the interest charges rather than making mandatory monthly repayments. At any time you may repay the interest, refinance or sell your home without penalty. You will always receive a monthly statement that will outline your interest charges and available line of credit activity. At the end of the day FHA is the entity who is insuring your loan for your lifetime. Because of the national MIP fund you are guaranteed that if a lender should go out of business in the future your loan will be transferred to another servicer and honored for your lifetime. Your line of credit will always he made available to you and you can stay in your home providing that you continue maintaining your property tax and insurance, regardless of how long you live or what your home value appreciates.
When does the Reverse Mortgage need to be paid off?
When you sell the property or no longer occupy your home as your primary residence for a period of 12 months or longer, or fail to maintain the property taxes and homeowners insurance. When the last surviving borrower should pass away the reverse mortgage becomes due and payable. Generally your heirs/estate will have up to six months to refinance your home if they are choosing to keep the house or up to 12 months to sell.
What does the lender expect from me?
You must pay the property taxes and the homeowners insurance and any homeowners association dues you may have. And of course, the lender expects you to continue to occupy the property.
I currently hold title in a Trust, can I keep it that way?
Yes you can but the lender and title company do require that they review the trust and it must be approved. If you hold title in a trust you should let your Loan Officer know up front so he/she can get a copy of the trust and have it reviewed immediately so that there are no surprises later. Most trusts are prepared with lenders and their requirements in mind so they are not a problem but it is best to know as early on as possible.
Do I need to own my house free and clear, or can I get a reverse mortgage if I already have a loan on my house?
You do not need to own your home free and clear to get a reverse mortgage. The proceeds can be used for any purpose, but any existing liens on the property must be paid off at closing. If the reverse mortgage is not large enough to cover your existing loan, you can still get the reverse mortgage by bringing in the additional funds from another account and still never have to make another house payment!
Will my heirs still receive an inheritance?
Often yes, after the balance of your reverse mortgage is paid off, all remaining equity will go to your heirs. One of the forms we provide you with before you close your loan is an amortization schedule so you will always know the principal balance of your loan, year by year. How much equity will remain will Depend on such variables as how much money you draw, how long you stay in your home, home appreciation your home experiences and interest rates (if you have a variable interest rate loan).
Sounds great so far, what is the down side of a reverse mortgage?
While the reverse mortgage allows you to age in place and has no recourse, you are spending what has typically become a portion of the inheritance people have historically left to their heirs. With the changing of people's life expectancies, people no longer work until they are 62 and then pass at 70 leaving an estate with a paid off mortgage for their heirs. Now, people are living longer and need an additional source of income to help fund their retirement as social security is not equipped to fulfill all their needs.
The reverse mortgage is an excellent and viable retirement tool but many older Americans find it better to talk to their families early on in the decision making process. Most family members are not equipped to fund their family needs as well as those of their parents and see reverse mortgages as welcome vehicles for their senior family members, however, communication is highly recommended. Also See: Here are the Downsides of a Reverse Mortgage in 2020
What are the Credit and Income Qualifications?
There are no minimum credit score requirements to qualify for a reverse mortgage loan. However, lenders are required to complete a credit analysis focused on your last 24 month payment history. Because it is required that you maintain property taxes and your homeowners insurance as part of the ongoing agreement of the reverse mortgage lenders must also check that you meet a minimum residual income as part of the FHA financial assessment guidelines. Learn more about qualifications & eligibility
How do I determine if the Reverse Mortgage is the right loan for me?
The reverse mortgage may not be right for all borrowers. There are many things to consider. With the costs of the loan and the government insurance, if you only need the loan for a very short period of time, a reverse mortgage may not be the right option for you. On the other hand, if you intend to occupy your property for a long period of time and wish to never make another payment for life while accessing your equity in the form of monthly payments, a line of credit, or both, then a reverse mortgage may be perfect for you! Learn more about how a reverse mortgage works.
How can I choose to take the reverse mortgage proceeds and are there any restrictions on what I use the funds for?
This is one of the great features of the loan... you have choices!
- Lump sum
- Monthly Payment
- A Credit Line which grows monthly on the unused portion
- A combination of any of the above, cash, credit line & monthly payments.
What are the interest rates for reverse mortgages?
Rates vary by program. For example, just within the HUD HECM loans you have fixed rates, monthly or annual adjustable rates. Adjustable rate programs offer more flexibility in how you may receive the proceeds available to you such as a line of credit or a monthly payment plan, where fixed interest rates are only available as a single disbursement lump sum.
While FHA sets the maximum fees a lender may charge, each lender has their own ability to charge their going rate to your balance. It is advised that you shop around for the best terms like you would any other type of mortgage. Compare current interest rates »
What are the Closing Costs?
Closing costs on reverse mortgages vary from lender to lender. Some of the companies you might see advertising on television have expensive national campaigns with paid celebrities and therefore might pass those additional costs to their customers. Depending on your loan amount we may be able to reduce or even waive all of the closing costs to set up your reverse mortgage loan. Again shop around, compare our interest rates and closing costs and please don't forget to check if your lender is reputable on the Better Business Bureau and compare their customer reviews.
Will I pay Taxes on these proceeds?
Funds received from your loan are generally considered to be *nontaxable as the money received is not income earned. You should always consult your trusted tax advisor.
Is the interest added to my balance tax deductible?
Can I make a payment back?
Yes. While a Reverse Mortgage does not require regular scheduled monthly payments, the program does permit a borrower to make voluntary partial or full payments on the loan. As stated before, there is no penalty to paying down or off your loan at any time. Also, if the loan is a fixed rate, funds submitted for prepayment cannot be re-borrowed at any point during the life of the loan, and the revolving credit feature does not apply. Learn more about making payments »
What if I don't want to take the full amount that I qualify for?
Reverse Mortgage Loans are not subject to prepayment penalties and therefore you can repay any portion of the excess proceeds you received at closing at any time to lower your balance, or you can choose a line of credit and only advance the portion of funds that you wish at closing.
What happens if the interest accrued exceeds the value of our home?
Since a HECM is insured by HUD, you are guaranteed that you and your heirs will never have to pay more than the property is worth in a bona-fide sale at time of maturity on the loan. Learn more about Non-Recourse loans »
Why do available proceeds vary from Lender to Lender? I thought that all Reverse Mortgages are the same?
The reason why proceeds vary from Lender to Lender is because each individual company sets different rates and margins for the products they are offering. Each Lender has the ability negotiate / set it's own fees and margins, and it is always a good idea to compare your options.
Will the proceeds affect Social Security or Medicare?
What is a Counseling Certificate?
A Reverse Mortgage Counseling Certificate is the certificate that you receive once you have attended a counseling session conducted by a certified reverse mortgage counselor. The counseling is specific to the program you have selected (whether it be the Government HECM program or one of the private proprietary products available) and can be done either face to face or by phone. We will be happy to give you the name and number for counselors who can offer the counseling for your desired product and we will be happy to assist you in setting up your appointment. Once you have completed the counseling, you will receive a certificate which the lender will require to proceed with your loan. The certificate ensures that you have an understanding of reverse mortgage loans in general and your program specifically. To view a list of reverse mortgage counseling agencies and their current turnaround and pricing visit our counseling locator page.
What do I need to give my All Reverse Mortgage Specialist?
- Copy of your driver's license or other picture ID
- Copy of your social security card
- Copy of your Homeowners Insurance Policy Declaration Page
- Copy of your Mortgage Statement(s) (need all if any)**
- Copy of your Trust (if your property is in a trust)**
Copy of the Power of Attorney if someone else will be signing for you**
- Conservator information if you have a court appointed Conservator**
- Bankruptcy discharge papers, if applicable**
All Reverse Mortgage is the first lender to bring an automated prequalification engine to the internet. Once you complete our secure and encrypted intake form we will automatically pre-approve you and provide you with your detailed list of loan conditions.
If you are ready to begin the process start with a quote from ARLO™ Calculator