What is a reverse mortgage?
A reverse mortgage is a loan against your home that enables you to convert a portion of your home’s equity in tax-free income. The loan does not come due for as long as you live in your home. Moreover, it does not come due until the last borrower leaves the home.
Simply put, a reverse mortgage is a loan that you don’t have to repay until you no longer live in your home.
The lender makes the loan based on your age, the amount of equity in the home, your location, interest rates, and the type of reverse mortgage you get. The money gets paid back with interest when the last borrower dies, permanently moves out of the house, or sells the house. It is quite often the proceeds from the sale of the house which satisfy the loan obligation.
What is the criteria? Who can get a reverse mortgage?
First, you must be 62 years of age or older. Second, the home must be your residence. In addition, if you have an existing mortgage balance, this will need to be satisfied by the reverse mortgage as stated below.
What if my home isn’t paid off, can I still get a reverse mortgage?
The debt must be satisfied with the proceeds of the reverse mortgage. Yes, the reverse mortgage can be used to pay off any remaining debt you currently have.
How can I use the money from the reverse mortgage?
You may use the money how you choose. You can pay current debts, make repairs or improvements to your home, pay for healthcare expenses, help the kids or grandkids, or simply have enough money not to worry.
How is this different from a home equity loan?
A home equity loan gets smaller over time, while a reverse mortgage gets larger over time. There are specific dates a home equity loan or HELOC must be repaid. A reverse mortgage comes due at death or permanent move from the house.
Does the lender own the house?
NO! You own your house.
Can my home ever be taken away from me?
NO! Your home cannot be taken from you even if you live longer than your "life expectancy." You can also never owe more than the home is worth.
Can I still pass the house on to my heirs?
YES! You may pass the house on to heirs if the loan has been paid off. The amount your home is worth above what you owe at the time of death goes into your estate.
Does it cost anything out-of-pocket to get a reverse mortgage?
These costs are generally limited to a minimal application fee and an inexpensive credit check. These fees vary, so it is best to ask!
What kinds of reverse mortgages are there?
The most common kind of reverse mortgage is a federally insured reverse mortgage. It is called a Home Equity Conversion Mortgage (HECM). These loans are insured by the U.S. Department of Housing and Urban Development (HUD).
There are other kinds of reverse mortgages known as proprietary reverse mortgages. It is best to ask loan specialists personally about the different kinds of reverse mortgages.
How do I get the money?
The different ways to receive the money from a reverse mortgage are:
· You can get the money all at once as a lump sum.
· You can receive monthly payments.
· You can take the money as needed.
· You may choose a combination of any of the above.
Wait, will my benefits be cut by this program?
Good question, a reverse mortgage does not affect your Social Security, Medicare, or pension benefits. However, SSDI and Medicaid can be a different story. It is generally possible to structure the loan in a way that your benefits remain intact. It is an important question to ask your loan originator. In addition, before the loan is issued, you will meet briefly with an unbiased, government approved counselor. It is also wise to consult an elder law attorney with these questions. The appropriate government agencies can also be helpful.