Frequently Asked Questions
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What is a reverse mortgage?
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How does a reverse mortgage differ from a home equity loan?
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What are the advantages of a reverse mortgage?
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I've heard that with a reverse mortgage the lender would own my home. Is this true?
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Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?
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Is it possible for my loan balance to become greater than the value of my home?
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Can a reverse mortgage lender take my home away if I outlive the loan?
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How much money can I get?
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How can I use the money I get from a reverse mortgage?
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In what ways can I receive the money from a reverse mortgage?
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What requirements or restrictions are involved in the reverse mortgage
process?
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I still owe money on a first or second mortgage. Can I still get a reverse mortgage?
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Can I get a reverse mortgage on a second home or resort property I own?
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What kinds of homes are eligible for a reverse mortgage?
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Would a home that is in a "living trust" be eligible for a reverse mortgage?
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What kinds of reverse mortgages are available?
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When must a reverse mortgage loan be repaid?
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What is owed when a reverse mortgage loan is repaid?
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How will a reverse mortgage affect my estate?
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Must the heirs sell the property to repay the reverse mortgage loan?
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What are the costs and fees?
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How much cash will I have to come up with to cover origination fees and other closing costs?
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Are reverse mortgage interest rates fixed or variable?
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Will a reverse mortgage affect my government benefits like Social Security and Medicare?
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Are there tax consequences with a reverse mortgage?
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Is the interest which accrues on a reverse mortgage tax deductible?
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What advice should I get before taking a reverse mortgage?
1. What is a reverse mortgage?
A. A reverse mortgage is a loan that enables senior homeowners,
age 62 and older, to convert part of their home equity into tax-free* income—without
having to sell their home, give up title to it, or make monthly mortgage payments.
The loan only becomes due when the last borrower permanently leaves the home.
* Consult Tax Advisor. Not all products available in all states.
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2. How does a reverse mortgage differ from a home equity
loan?
A. Both a reverse mortgage and a home equity loan use the equity
you have built up in your home to provide you with readily available cash.
They differ in that with a home equity loan you must make monthly mortgage
payments. However, with a reverse mortgage you do not
make any monthly mortgage payments for as long as you stay in the home.
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3. What are the advantages of a reverse mortgage?
A. There are many. Here are a few of the most significant:
- Stay in your home. It allows you to remain in your home and retain home ownership.
Statistics show that an overwhelming number of seniors want to stay in their home.
- No monthly mortgage payments. You need not pay back the reverse mortgage loan nor
make any monthly mortgage payments until you permanently move out of the home.
- Accessible Funds. You can pay off credit cards and other high interest debt.
- Tax-free money. Because the money you receive from a reverse mortgage is not considered
income, it is tax free* and will not affect your Social Security or Medicare benefits.
- Freedom and flexibility. The money you get from a reverse mortgage is yours to use
in any way you choose.
- Remain independent. A reverse mortgage allows you to make your own decisions and
not rely on others for financial support.
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4. I've heard that with a reverse mortgage the lender would own
my home. Is this true?
A. It's absolutely false. The borrower retains
title to the property. The reverse mortgage lender is merely extending a loan to
the borrower.
Because the homeowners retain title, they remain responsible for the payment of
property taxes, insurance, utilities, home maintenance, and other expenses — just
as they would with a standard first mortgage or home equity loan.
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5. Can I refinance a reverse mortgage, as I would be able to do
with a traditional home mortgage?
A. Yes. Refinancing can make sense in many circumstances, especially
if your home increases in value
or interest rates drop.
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6. Is it possible for my loan balance to become greater than the
value of my home?
A. Yes. However, you can never owe more than what your home is
worth at the time your home is repaid. Since the reverse mortgage is a "non-recourse" loan, the
lender cannot seek repayment from your income, your other assets, or your estate.
In other words, the house stands for the debt.
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7. Can a reverse mortgage lender take my home away if I outlive
the loan?
A. No, they cannot. And the loan is not due at that time either.
In fact, you don't need to repay the loan as long as you or another borrower continues
to live in the house and keep the taxes and insurance in force.
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8. How much money can I get?
A. The amount you can borrow depends on several factors, including
your age, the type of reverse mortgage you select, current interest rates and the
appraised value of your home. In most cases, the older you are, the more valuable
your home, the less you owe on it and the more money you can get.
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9. How can I use the money I get from a reverse mortgage?
A. You can use the money for anything you choose, from daily living
expenses, home improvements, healthcare expenses, paying off existing debts, or
simply enhancing your retirement years. For many people, the money provides a "financial
security blanket," in case unexpected expenses arise.
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10. In what ways can I receive the money from a reverse
mortgage?
A. With most reverse mortgages you have a wide range of payment
options, one of which should be ideal to meet your financial needs:
- You can choose to receive the money all at once, as a lump sum.
- You can receive equal monthly payments as long as one of the borrowers lives and
continues to occupy the property as a principal residence.
- You can choose to receive equal monthly payments for a fixed period of time.
- You can get a line of credit; which allows you to take funds at times and in amounts
of your choosing until the line of credit is exhausted. This is the most popular
option, chosen by more than 60% of reverse mortgage borrowers.
- Or, finally, you can choose a combination of any of the above.
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11. What requirements or restrictions are involved in
the reverse mortgage process?
A. Seniors 62 years of age or older qualify. There are no income,
health or credit qualifications.
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12. I still owe money on a first or second mortgage. Can I still
get a reverse mortgage?
A. Yes. You may be eligible for a reverse mortgage even if you
still owe money on a first or second mortgage. The funds you would receive in the
reverse mortgage would be used to pay off whatever existing mortgages or liens you
have on the property.
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13. Can I get a reverse mortgage on a second home or resort property
I own?
A. Unfortunately no. Reverse mortgages may only be taken out on
your primary residence.
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14. What kinds of homes are eligible for a reverse mortgage?
A. First and foremost, the reverse mortgage must be on the borrower(s)
primary residence. Most reverse mortgages are taken on single family, one-unit homes.
Some programs also accept two-to-four unit buildings that are owner-occupied, condominiums, and manufactured homes built after
June, 15 1976.
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15. Would a home that is in a "living trust" be eligible for a reverse
mortgage?
A. Yes. In most cases a homeowner who has put his or her home in
a living trust can usually take out a reverse mortgage. A review of the trust documents
would be made by the reverse mortgage lender to determine if anything in the living
trust would be unacceptable.
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16. What kinds of reverse mortgages are available?
A. There are two basic types of reverse mortgages:
- Federally-insured reverse mortgages. Known as Home Equity Conversion Mortgages (HECM),
they are insured by the U.S. Department of Housing and Urban Development (HUD).
They are widely available, have no income requirements, and can be used for any
purpose.
- Proprietary reverse mortgages. These are privately financed loans with unique features
that appeal to seniors for specific reasons, such as looking to maximize the cash out.
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17. When must a reverse mortgage loan be repaid?
A. Your reverse mortgage loan becomes due and must be paid in full
when one or more of the following conditions occurs: (a) the last surviving borrower
passes away or sells the home; (b) all borrowers permanently move out of the home;
(c) the last surviving borrower fails to live in the home for 12 consecutive months
due to physical or mental illness; (d) you fail to pay property taxes or insurance;
(e) you let the property deteriorate, beyond what is considered reasonable wear
and tear, and do not correct the problems.
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18. What is owed when a reverse mortgage loan is repaid?
A. When the last surviving borrower permanently moves out of the
home or dies, just like with any conventional loan, the reverse mortgage loan becomes
due. The reverse mortgage principal, interest charges, and service fees (such as
closing cost fees) are paid from sale of the house or other assets of the estate if the estate wishes to keep the home.
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19. How will a reverse mortgage affect my estate?
A. When you sell your home or no longer use it for your primary
residence, you or your estate must repay the lender for the cash received from the
reverse mortgage, plus interest and service fees. Any remaining equity belongs to
you or your heirs. It's important to remember that you can never owe more than the
sales proceeds from the home when it is sold. None of your other assets will be affected
by your reverse mortgage loan.
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20. Must the heirs sell the property to repay the reverse mortgage loan?
A. No. Repayment may be accomplished by refinancing the reverse
mortgage with a traditional "forward" mortgage loan, another reverse mortgage if the heirs qualify, or through the use of other assets.
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21. What are the costs and fees?
A. Like regular mortgages you have the normal fees which include
the appraisal, origination fee, closing costs, insurance, etc. These charges can
be funded by the reverse mortgage with little to no out-of-pocket cost to the borrower.
The costs are added to the principal and paid at the end, when the loan becomes
due. For more details on the costs and fees, ( click here .)
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22. How much cash will I have to come up with to cover origination
fees and other closing costs?
A. One of the real benefits of a reverse mortgage is that you can
use the money you get from your home's equity (dependent upon final calculations)
to pay for the various fees that are part of the loan costs. The costs are
simply added to your loan balance, and you pay them back, plus interest, when the
loan becomes due—that is when the last surviving borrower permanently moves out
of the home or passes away. There are no out-of-pocket expenses when you choose to work with Stay In-Home Mortgage.
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23. Are reverse mortgage interest rates fixed or variable?
A. Reverse mortgage interest rates can either be fixed or variable depending on your objectives. There are advantages to both options.
Our Senior Home Advisors will be happy to discuss these options further when you call.
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24. Will a reverse mortgage affect my government benefits like Social Security and Medicare?
A. The funds from a reverse mortgage do not affect your Social Security or Medicare benefits.
If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as "liquid assets" if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.
You should discuss the impact of a reverse mortgage on federal, state or local assistance programs with a professional advisor, such as your local Area Agency on Aging (toll free at 1-800-677-1116 ), an independent reverse mortgage counselor*, or a tax attorney.
* A list of approved counseling agencies is posted on the Internet by the U.S. Department of Housing and Urban Development, at www.hud.gov.
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25. Are there any tax consequences with a reverse mortgage?
A. A reverse mortgage is considered a loan, and not income, and as such, the IRS considers them to not be taxable.
You should discuss the impact of a reverse mortgage with a professional advisor, such as a tax attorney or accountant.
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26. Is the interest which accrues on a reverse mortgage tax deductible?
A. Interest on reverse mortgages is usually not deductible on your income tax return until the loan is either paid off,
or if you are making payments, that those payments are reducing the interest portion of your loan balance. You should discuss the impact of a reverse mortgage with a professional advisor, such as a tax attorney or accountant.
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27. What advice should I get before taking a reverse
mortgage?
A. It's federally mandated that all seniors wanting to do a reverse
mortgage must have counseling from a HUD approved reverse mortgage counselor. This
is a government safeguard designed for your protection. The counselor, who is from
an independent government-approved housing counseling agency, explains in detail
the pros and cons of all your reverse mortgage alternatives. He or she will discuss
a reverse mortgage's costs and financial implications, should tell you about any
government or nonprofit programs for which you may qualify, and advise you on any
proprietary reverse mortgages that may be available in your area.
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