Common Reverse Mortgage Questions

Choosing to do a reverse mortgage can provide seniors many financial benefits to help them better enjoy their retirement. As with any loan, though, it’s important to be informed before you make the decision to move forward. We hope the below questions and answers help you better understand how a reverse mortgage works, but if you have any further questions we are happy to meet with you to discuss in more detail.

A reverse mortgage is a loan that enables homeowners 62 years of age and older to tap into some of the equity they have accumulated in their home and convert it into tax-free cash. (Consult a tax advisor.) A Home Equity Conversion Mortgage (HECM) is safe and secure because it is insured by the federal government through the U.S. Department of Housing and Urban Development (HUD/FHA). A reverse mortgage allows you to:

  • Eliminate monthly mortgage payments
  • Continue to own and maintain full control of your home
  • Protect against owing more than the value of your home
  • Keep all remaining equity
  • Eliminate your mortgage payments while paying off your existing mortgage
  • Receive tax-free money by converting the equity in your home into cash
  • Continue to live in your own home while maintaining ownership
  • Once you are qualified, there are minimal restrictions on how you can use the money. For example, there are certain restrictions on purchasing annuities or other financial products.
  • You or your heirs keep all remaining equity after the loan is paid off
  • You or your heirs will never owe more than the home is worth
  • You cannot lose your home under normal circumstances, but please understand foreclosure may occur if you do not pay your taxes and insurance and otherwise comply with the loan terms
  • Does not affect Social Security or Medicare benefits
  • Government insured
  • No pre-payment penalty means you may repay the loan at anytime
  • Flexible payment options allow you to receive your money in various ways
  • All borrowers must be 62 years of age or older
  • The home must be your primary residence
  • There must be sufficient equity in your home
  • Your home must be one of the following:
    • Single-family residence
    • One to four family unit dwelling
    • Planned unit development
    • HUD-approved condominium
  • Your home must meet HUD's minimum property condition standards (you can use the reverse mortgage to pay for necessary repairs that may be required).
  • Receive counseling from a HUD-approved counseling agency. Click here to contact us for a list of approved agencies.

You can receive your money in any of the ways listed below, or a combination of these:

  • Line of Credit - to be drawn from when you want
  • Lump Sum - all at once
  • Tenure - receive monthly payments (Lender will set aside a specific amount of money for a line of credit, and borrower may outlive the monthly payment stream. Borrower must maintain home as pricipal residence.)
  • Term - for a specific time period pre-determined by you
  • Combination - select a combination of the above options

The amount depends on three factors:

  1. The age of the youngest borrower
  2. The current value of your home, the sales price if you are purchasing a home, or the FHA maximum lending limit, whichever is lower
  3. The current 'expected' interest rate

These three factors determine your cash equity benefit (the gross amount of money available). The actual net cash available is then determined by deducting any existing mortgages and deducting the closing costs of the reverse mortgage.

No! You can use the money any way you desire - it's your money!

There are an infinite number of ways seniors utilize the proceeds from a reverse mortgage, ranging from practical to fun. Here are just some of them:

  • Eliminate monthly mortgage payments
  • Home repairs or home remodel
  • Pay for in-home health care
  • Pay for medical bills or pay for prescription medications
  • Payoff credit cards or other debts
  • Cover daily living expenses
  • Travel
  • Help their children buy a home or assist other family members
  • Assist grandchildren with their college education
  • Purchase items you have always wanted or needed

The loan is due and payable when the borrower sells the home, permanently leaves the home (12 months or more), or all parties on the title at time of loan origination have passed away.

It is your home, so you can leave it to your children or to anyone you choose. However, the loan is not assumable (it can't be taken over by someone else). Your heirs can pay off the loan any number of ways including selling the home. If they wish to keep the home, they would need to refinance it and pay off the reverse mortgage loan in full.

Reverse mortgages are "non-recourse," which means the lender cannot collect more money than the home is worth, regardless of how much is owed and they cannot seek other assets to pay for the debt. This is an excellent protection for you. If the heirs wish to keep the home then the lender is entitled to all that is owed including interest and closing costs.

Yes, the trust must meet HUD guidelines and be approved by the lender. If you would like to confirm your trust is acceptable for a reverse mortgage, you can click here to contact us and we can review it for you FREE of charge.

Many financial advisors and senior advocates, including the National Council on Aging, suggest that a reverse mortgage can be a smart way to secure your financial future during retirement.

As with any loan, there are closing costs associated with obtaining a reverse mortgage. Standard costs include: the lender loan origination fee, HUD required counseling, FHA mortgage insurance, and 3rd party fees such as title, escrow, and appraisal.

The IRS does not consider proceeds from a reverse mortgage to be taxable income. They are considered loan advances on your equity and are not taxed. (We recommend consulting a tax professional.)

The interest is deductible at the time the loan is paid in full. (We recommend consulting a tax professional.)

Payments you receive do not affect your Social Security or Medicare benefits. However, in the Federal Supplemental Security Income Program there are specific requirements for certain programs such as Medicaid. Therefore, we suggest that you consult a benefits specialist in your area to determine if you would be affected.

The information in this website is not from HUD or FHA and was not approved by HUD or a government agency.

We'll walk you through each step of the loan process.
Contact us today to get started!