Is a Reverse Mortgage Right for You?

Are you 62 or older?
Do you own you home (or are you close)?
Do you live there the majority of the year?
Do you plan to live there for many more years?
Do you need money to modify your home to make it more supportive for age related changes or to meet rising medical costs or other needs?

If you answered yes to any of these questions, you may want to learn more about “reverse mortgages”. This form of financing enables many seniors to remain in their homes. Reading this article will help you determine if a reverse mortgage might be an option for you. If it is, you may want to do more research and/or you may want to see someone who can explain a reverse mortgage in detail. Reverse Mortgage Counselors, Inc. is an neutral, non-profit HUD certified organization that educates people about reverse mortgages; you can reach them at 651-368-8516. 

If you’re like many Americans, your home is probably your biggest financial asset. In the past, the only way you could “cash in” on that investment was to sell your home or borrow against it. With a reverse mortgage, however, you can take advantage of the equity you have in your home without having to move and without making monthly loan repayments. As a matter of fact, you don’t have to pay back a reverse mortgage for as long as you live in your home.

 What is a Reverse Mortgage? A reverse mortgage is a loan against your home’s equity. The loan provides cash advances to the borrower, but requires no repayment until the last borrower sells or moves out permanently. There are several types of reverse mortgages, but the one that is the most widely used is the Home Equity Conversion Mortgage, HECM. This reverse mortgage is administered by the Department of Housing and Urban Development, HUD, and insured by the Federal Housing Administration, FHA.

Who can qualify? Homeowners who are 62 or older; even those with a poor credit rating can qualify.

 What are the costs?  Most costs can be rolled into the loan.

• Normal closing costs.
• FHA mortgage insurance premium.
• Adjustable interest rate.
• A small monthly servicing fee.

How much can I get? Your age, your spouse’s age, (in couples it is based on the youngest person’s age) your home’s equity and the expected interest rate determine how much you can receive. The older you are the more money you can access.

Who determines the value of my house? An FHA appraiser determines the value of your house.

 How is a Reverse Mortgage different from a Home Equity Loan? With a home equity loan the borrower must start to repay the loan immediately. With a reverse mortgage no payment is due until the owner leaves the home, sells the home, or transfers the title.

 What types of property qualify?

•  Single family homes, PUDs (Planned Unit Developments).
• Duplexes, triplexes, fourplexes.
• Most condominiums.
• Farm houses.
• Some manufactured homes.
• What if I still owe on my house? You can still get a reverse mortgage if there is enough equity to pay off the existing mortgage.

 What if my house needs repair? Funds from the reverse mortgage can be withheld to make the repairs.

 What if I decide I want to sell my house? You can sell your house at any time. The loan is then repaid and you keep the remainder of the equity.

 Does the lender get the house? No, (you and your heirs) remain the owner of the house. When you are done with the house, you or your heirs can sell the house. The loan is repaid and the remainder of the money is yours or your heirs. If your heirs want to keep the house, they would need to get a regular mortgage and pay off the loan.

 How can I withdraw my money? You can select from several withdrawal plans and you can change the plan during the course of the loan.

•  Line of credit you can use as you wish.
• Monthly payout until you leave the home or for a specified amount of time.
• A combination of a line of credit and monthly payout.
• Who pays the taxes and insurance? In most cases you pay taxes and insurance.

Are there any restrictions on how I spend my money? There are no restrictions on how you spend your money. Some uses are: prescription drugs, pay back taxes, home improvement, pay off the house, making ends meet, take a vacation, purchase a car, or buy a vacation home.

 Would I ever owe more than the house is worth? The loan is a non-recourse loan and you are only responsible only for what the house sells for. Any loan amount greater than the sales price of the home does not have to be paid by you or your heirs.

 Will this affect my taxes? No, it is a loan and the money is not taxed.

 When is the loan repaid? The loan is repaid when the last homeowner leaves the house, sells the house or transfers the title of the house.

 What if I am currently receiving public benefits? If you are receiving public benefits that are income based, such as energy assistance, you may still be eligible for a reverse mortgage.

 Why do I need to see a reverse mortgage counselor? For consumer protection it is required that anyone getting a Home Equity Conversion Mortgage see a certified counselor. In Minnesota it is a law that you have this counseling prior to receiving any reverse mortgage from a Minnesota counselor. During the session the counselor will go over the reverse mortgage step by step, suggest other programs that can help you stay in your home, and explain the process in general. You will learn about reverse mortgages, so you can make the best decision for yourself. The length of the session depends on your knowledge of the product. Attending the counseling session does not mean that you are getting a reverse mortgage; it simply means you are interested in learning more about the product.

 This sounds too good to be true! I am interested in learning more about reverse mortgages, where do I go from here?

Call Reverse Mortgage Counselors, Inc., 651-690-3141.