What is a reverse mortgage?

HomeChex Reverse MortgageThe most popular reverse mortgage program in America, the Home Equity Conversion Mortgage (HECM) is insured by the Federal Housing Administration of the U.S. Government. A reverse mortgage enables older homeowners (62 or older) to convert a large part of the equity in their homes into tax-free cash without having to sell the home, give up title, or take on a new monthly mortgage payment. This provides homeowners substantially greater resources and flexibility to manage retirement finances and retirement planning.

For most people, a large portion of their wealth is the built up equity in their homes. Until the advent of reverse mortgages, there were only two ways for a homeowner to reach that valuable equity. You could sell and move, an option that most people don’t like. Or, if you qualified for a loan, you could borrow against your home with an ordinary loan. But, that involves making mandatory monthly payments to the lender – a major risk for people of retirement age and an option most people find unattractive.

A reverse mortgage is a great way for you to turn an idle asset – your home – into a valuable financial tool that you can use today and in the future – without taking on new payment risks. With a reverse mortgage you don’t pay, you receive. A line of credit is established for you to draw upon at times and amounts of your choosing. Or, you can arrange for a monthly income supplement – or both.

It’s called a reverse mortgage because the flow of payments is reversed from an ordinary mortgage. Cash is advanced to you to use as you see fit. Repayment is not required for as long as you live in your home – no matter how long that may be!

Reverse mortgages have provided new financial opportunities to nearly a million American households.  Perhaps a reverse mortgage will do the same for you too!

FAQs

Over the years, we’ve helped thousands of people understand the power of reverse mortgages. Here are some of the questions they ask the most.

What is different about a reverse mortgage?

Reverse mortgages have been designed for the specific needs of homeowners near or in retirement. With reverse mortgage you don’t pay, you receive. They provide access to tax-free funds without having to make monthly mortgage payments. A reverse mortgage remains in place and available for as long as you remain in the home. There is no maturity date and a lender can not change the terms down the road.

How do I know if I'm eligible for a reverse mortgage?

You’re eligible if you’re age 62 or over and own your home. It must be your principal residence and meet the minimum property standards of the U.S. Department of HUD.

What if I already have a mortgage or home equity loan?

That’s fine, reverse mortgages are often used to pay off existing debts and eliminate payments.  All mortgages and liens against the property must be paid off after the loan closing.

How much can I receive?

It depends on current interest rates, your age, and the value of your home. The older you are and the higher the value of your home, the more money available to you. As for interest rates, when they’re high, the amount declines. When interest rates are low, as they are now, the amount is greater.

How do I receive my money?

It’s your choice: lump sum, ready line of credit, or scheduled monthly income supplement. You can also combine options, such as a line of credit together with a monthly income supplement. Depending on your preference, your money will be directly deposited to your bank account or paid by check.

Are the proceeds taxable?

No. It’s not taxable upon withdrawal even if you choose to receive your money as a monthly income supplement.

Does ownership of the home change?

No. Like any other mortgage, title to the home remains in your name. As always, you are responsible for payment of property taxes, homeowners insurance, other property charges and maintaining the property in reasonable condition.

Will this affect my Social Security or Medicare benefits?

No. A reverse mortgage does not affect Social Security or Medicare benefits.

Are there closing costs?

Yes. A reverse mortgage involves closing costs that are similar to a traditional mortgage. However, most of these costs can be paid from proceeds so there are few “out of pocket” costs.

When does it get repaid?

Repayment occurs when all homeowners at the time the loan was made permanently move from the home. At that time, the amount due can be paid from the sale proceeds or other means. The house does not have to be sold. You, your children, or heirs always have the option to pay off the loan and keep the house. As a protection to you and the lender, the FHA guarantees that the repayment amount can’t exceed the value of your home at the time it’s repaid.

What else should I know?

  • A reverse mortgage is secured solely by the value of your home. You or your heirs will never have any personal liability for repaying the loan.
  • Life Estates are eligible.
  • In New York State, reverse mortgage income is exempt from consideration as resources for public assistance programs, such as energy assistance, SSI, and Medicaid.
  • The available amount under the line of credit option automatically increases each year that you live in your home.
  • People who plan to stay in their homes for several more years benefit most from the program.

What are the next steps?

If this sounds like an attractive option to you give us a call. We’ll send additional information and if you wish, arrange a meeting to review the program in detail. This will be at a time and place convenient for you, such as your home or our office.