Reverse Mortgage FAQ
What is a Reverse Mortgage?
How do you qualify?
How can you use the money?
Can you lose your home?
How is the Reverse Mortgage paid back?
What we want to leave the home to our kids?
How much cash can we receive?
What do the experts say about this program?
Are there any costs?
Will we have to pay any taxes?
Will this loan my Social Security or Medicare benefits?
Q. What is a Reverse Mortgage?
A. Reverse Mortgage is a special type of loan that allows you to convert a portion
of the equity in your home to eliminate mortgage payments and even gain tax-free
income without losing the title to the home. The accumulated equity derived from
mortgage payments and appreciation can be paid to you. But unlike a traditional
home equity loan or second mortgage, no repayment is required until you no longer
use the home as your principal residence. Most Reverse Mortgages are FHA-insured
and guaranteed. A small percentage of available Reverse Mortgages offer built in
private insurance.
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Q. How do you qualify?
A. You must be 62 or older and own a home with some equity. You don't need any income
to qualify. If you currently have a mortgage, that's okay -- we can pay it off with
a Reverse Mortgage. You can even have bad credit, as long as there are no current
government liens against your home.
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Q. How can you use the money?
A. The money from a Reverse Mortgage can be used for any purpose, from making ends
meet to living retirement dreams. The top reasons for funds used given typically
by borrowers are:
Paying off debts, primarily mortgage and credit cards
Home repairs and remodeling
Living expenses
Travel
Health care or long-term care
Easing the financial burden on their children
Education
Hobbies
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Q. Can you lose your home?
A. Absolutely not. As long as you remain the homeowner you can stay in the home
for as long you desire. In effect, the you are being paid to live at home. The program
is regulated and insured by the Federal Housing Administration. By law, your can't
be forced to sell or move. And no payments are due on the Reverse Mortgage until
you no longer live in the home.
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Q. How is the Reverse Mortgage paid back?
A. This isn't a home equity loan. The loan is paid back when you move out of the
home, sell it or all the people on the title have passed away.
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Q. What if we want to leave the home to our kids?
A. You can still leave it to your children or to anyone you choose. Your heirs can
pay off the loan in any number of ways, including:
Selling the house;
Refinancing the debt; or
Use other funds to pay off the Reverse Mortgage.
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Q. How much cash can we receive?
A. The amount depends on your age and the value of the home.
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Q. What do the experts say about this program?
A. Many financial counselors, senior advocates and published reports suggest that
a Reverse Mortgage can be a smart way to secure a financial future during retirement.
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Q. Are there any costs?
A. As with any loan, there are closing and other costs, all of which can be paid
with the money generated by the Reverse Mortgage but there are NO out-of-pocket
costs to the homeowner.
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Q. Will we have to pay any taxes?
A. In general, the IRS does not consider proceeds from a Reverse Mortgage to be
taxable income. You are still responsible for property taxes, homeowner's insurance
and for all home upkeep and maintenance. You will be recommended to consult with
a tax professional.
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Q. Will this loan affect my Social Security or Medicare benefits?
A. HECM payments do not affect Social Security or Medicare benefits because those
benefits are not based on the your assets. However, in the federal Supplemental
Security Income program, beneficiaries must keep their liquid resources under certain
limits.
If you don't spend HECM advances in the month received, then such funds are considered
part of your liquid resources and may adversely affect your eligibility for SSI.
Regulations vary for state-administered programs such as Medicaid, Aid for Dependent
Children (AFDC) and food stamps. Therefore, we suggest that you consult with a benefits
specialist at your local Area Agency on Aging or the local offices for these programs
to determine how HECM payments may affect your particular situation.
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