FAQ’s About Reverse Mortgages

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you but unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.

Question: What is the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

You don’t make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities.

Question: If I take out a reverse mortgage will the lender then own my home?

Answer: No. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. As long as the house is maintained and property taxes and homeowners insurance are paid, the loan cannot be called due.

Question: Can I get a reverse mortgage if I have an existing mortgage?

Answer: With enough equity, you may be able to pay off your existing mortgage or other debt with the reverse mortgage. The reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. Seniors who take out reverse mortgages are free to do anything they want with their reverse mortgage proceeds. Paying off an existing mortgage is the number one reason most seniors take out a reverse mortgage.

Question: If I outlive my life expectancy, can the lender evict me?

Answer: No, reverse mortgage lenders put no time limit on how long seniors can stay in their homes. Since homeowners still own the property, lenders cannot evict them, provided they follow the program guidelines.

Question: Are there objective advisors available to seniors trying to decide if a reverse mortgage suits their needs?

Answer: Borrowers are required to work with independent, third party counselors approved by the U.S. Department of Housing and Urban Development (HUD) in their local communities. This educational session helps them make the right decision for their unique situations.

Question: Are there restrictions on how reverse mortgage proceeds may be used?

Answer: There are no restrictions. The cash proceeds from the reverse mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used reverse mortgages to pay off debt, help their kids, make ends meet or to have a financial reserve.

Question: If I otherwise qualify FHA’s HECM Reverse Mortgage, can I still apply if I didn’t buy my present house with FHA mortgage insurance?

Answer: Yes. It doesn’t matter if you didn’t buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured.

Question: Will I still have an estate that I can leave to my heirs?

Answer: When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.

For more information, visit HUD’s Reverse Mortgage information page.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: