Question 1

BASICS -- What is a reverse mortgage?

Accepted Answer

A reverse mortgage is a government insured loan that allows seniors who own equity in their homes to convert that equity into cash without giving up ownership of their home.

Question 2

BASICS -- How does a reverse mortgage work?

Accepted Answer

A reverse mortgage is a loan given to you and secured by the equity in your home. Unlike a traditional mortgage, there are no monthly payments due from you to the lender; the lender pays you.

Question 3

BASICS -- How do I receive funds from a reverse mortgage?

Accepted Answer

You may draw down funds in any of the following ways (or a combination of the following ways):
1. As a lump sum.
2. As an ongoing line of credit. 
3. As monthly payments.

Question 4

BASICS -- Why would I enter into a reverse mortgage?

Accepted Answer

A reverse mortgage lets seniors use the value of their home as a source of income. Here are a few reasons why seniors love reverse mortgages:

1. Comfort of Home - Get access to capital without giving up your home and community. 
2. Payments for Life - The longer you live, the longer you get paid out, without caps. 
3. Monthly Income - Create your own pension fund using the equity in your home. 
4. Fast - Access your line of credit quickly in one to five days.  
5. Flexible - Delay social security payments and keep your investment portfolio. 
6. Tax Efficient - Increase spending capacity, but not taxable income.

Question 5

BASICS -- How common are reverse mortgages?

Accepted Answer

Reverse mortgages have been around since 1961. To date, over 250,000 seniors have utilized reverse mortgages to help improve their financial futures.

Question 6

BASICS -- Are there limits for how the funds are used?

Accepted Answer

In general, no, you may use the funds as you wish.

However, depending on your credit profile as a borrower, you may be required to set aside funds for the loan to pay for taxes and insurance.

Question 7

BASICS -- What are other names for a reverse mortgage?

Accepted Answer

You’ll commonly see a reverse mortgage called Home Equity Conversion Mortgages, or HECM for short.

Question 8

BASICS -- What if I change my mind after the deal? Can I back out?

Accepted Answer

Within 3 days of closing a reverse mortgage, you can cancel the loan without penalty. This is called the rescission period. After the rescission period, to cancel the loan, you'll need to pay back the loan proceeds plus accrued interest.

Question 9

QUALIFICATIONS -- As a borrower, what do I need to do to qualify for a reverse mortgage?

Accepted Answer

For a borrower to qualify for a conventional reverse mortgage, you'll need to be above 62 years old, have equity in your primary home, have the financial ability to cover home expenses, have no other federal debt, and have had a session with an FHA approved home-equity counselor.

Some lenders also offer "proprietary" reverse mortgages, which may relax certain qualification requirements such as allowing borrowers to be over 55 years old instead of 62 years old.

Question 10

QUALIFICATIONS -- What types of property qualify for a reverse mortgage?

Accepted Answer

To qualify for a conventional reverse mortgage, the property must serve as a primary residence and meet FHA and flood requirements.

Question 11

QUALIFICATIONS -- Can I do a reverse mortgage on a secondary home?

Accepted Answer

No, reverse mortgages are only allowed on primary homes.

Question 12

QUALIFICATIONS -- How much money will I qualify for?

Accepted Answer

The amount of money you qualify for is driven by five main factors:

1. Your age.
2. Your home's appraised value.
3. Interest rate of your loan.
4. Your current mortgage balance (you must use the proceeds to pay off your existing mortgage). 
5. In the case of a conventional reverse mortgage, the Federal Housing Administration (FHA) limit is currently $970,800.

In general, the more your home is worth and the older you are, the more money you can access. Keep in mind that during the first 12 month after closing, you cannot access more than 60% of the available loan proceeds.

If you'd like to learn exactly how much money you can access through a reverse mortgage, please contact us at: hello@agingathomepartners.com(mailto:hello@agingathomepartners.com?subject=Reach%20out%20to%20Aging%20at%20Home%20Partners)

Question 13

REPAYMENTS -- When do I have to repay the loan?

Accepted Answer

The reverse mortgage loan becomes due for repayment when all the homeowners have either passed away or permanently moved out of the home. The one caveat is that the loan must be in good standing, meaning taxes and insurance are paid and the home is maintained according to the Federal Housing Administration (FHA) guidelines.

Unlike other types of loans, the reverse mortgage is based on the time that you live in your home, so loan payments do NOT come due prior to you leaving the home assuming FHA guidelines are met. This is one of the most unique and beneficial features for seniors!

You may, of course, make a partial prepayment of the loan at any time.

Question 14

REPAYMENTS -- Do my heirs lose control of my home if I enter into a reverse mortgage?

Accepted Answer

No, your heirs will maintain control of the home.

When the time comes, your heirs will need to satisfy the reverse mortgage debt by paying the lesser of the mortgage loan balance or 95% of the then-current appraised value of the home. It's up to your heirs if they want to keep or sell the home.

Typically heirs will either: (a) sell the home and keep any remaining equity, or (b) keep the home and pay back the reverse mortgage debt through other sources of cash or refinancing the home using a traditional mortgage.

Question 15

REPAYMENTS -- Will I ever need to pay back more than the home is worth?

Accepted Answer

No, you never pay back more than the home is worth. Why is that? Because reverse mortgages are "non-recourse" -- meaning no assets above and beyond the value of the home are required to repay a reverse mortgage. The non-recourse feature applies if you OR your heirs are repaying the mortgage.

Question 16

COSTS -- What is Mortgage Insurance Premium (MIP) and how does it work?

Accepted Answer

Under a conventional reverse mortgage, it's required that you are charged Mortgage Insurance Premium (MIP). MIP is equal to 2.0% of the home's appraised value (not to exceed $970,800) at closing and 0.5% of the outstanding loan balance on an annual basis. Keep in mind that the MIP fees do not come out of your available loan proceeds. Rather, they accrue over time and are paid at once when the loan is payable.

MIP is an important part of a reverse mortgage transactions for the following reasons:
1. Insurance Against Credit Risk -- MIP protects you as the borrower if your loan provider goes out of business. In this case, MIP enables the government to step into the shoes of your loan provider and to ensure that you have continued access to your loan funds. 
2. Non-Recourse Loan -- MIP ensures that you will never owe more than the value of your home when the reverse mortgage is to be repaid.

Question 17

COSTS -- Do I have to carry hazard and flood insurance?

Accepted Answer

Hazard Insurance -- Yes. It is important that you maintain hazard insurance on any property throughout the term of the reverse mortgage. Failure to maintain hazard insurance is considered a default on a reverse mortgage.

Flood Insurance --  Maybe. You must maintain flood insurance on any property throughout the term of the reverse mortgage ONLY if your property is in an area identified by FEMA as having special flood hazards. Keep in mind that FEMA updates their Flood Maps periodically, so even if you were not required to carry flood insurance at the onset of the reverse mortgage, you may be required to later on.

Question 18

COSTS -- What is a set-aside and how does it work?

Accepted Answer

Set asides are when your reverse mortgage service provider pays your taxes or insurance on your behalf.  The set-aside funds only become part of your loan balance at the time the funds are disbursed. The two common items that you may elect to have "set-asides" for are property taxes and hazard insurance.

Question 19

MISCONCEPTIONS -- Will I lose my social security or medicare benefits if I enter into a reverse mortgage?

Accepted Answer

No. A reverse mortgage does NOT impact your social security or medicare benefits since both programs do not have an income based test. For benefits that have an income based test, you'll want to check if the cash flows from a reverse mortgage push you into a new income bracket.

Moreover, a common strategy is to use a reverse mortgage to access capital in order to delay accessing social security benefits, thereby increasing the monthly benefits from social security in the future.

Question 20

MISCONCEPTIONS -- Do I have to give up the title to my home with a reverse mortgage?

Accepted Answer

No, you do not give up the title. This is a common misconception that is 100% false.

Question 21

MISCONCEPTIONS -- Do I get taxed on the funds from a reverse mortgage?

Accepted Answer

No, funds from a reverse mortgage are not taxed. In fact, many people like to enter into reverse mortgages instead of liquidating retirement accounts because funds from a reverse mortgage are not taxed.

Question 22

MISCONCEPTIONS -- If I file for bankruptcy do I default on my reverse mortgage?

Accepted Answer

No, filing for bankruptcy is NOT considered a default under a reverse mortgage. However, upon filing for bankruptcy, you may not access additional loan proceeds from your reverse mortgage unless that request for funds is approved by the court or the trustee monitoring the bankruptcy proceedings.

Question 23

MISCONCEPTIONS -- Will I be forced to leave my home?

Accepted Answer

As long as you're in good standing (i.e. paying your taxes, insurance, and keeping up the property), you will not be forced out of your home. The loan will become due when the last resident of the home passes away or permanently leaves the home. In general, the Federal Housing Administration (FHA) backs reverse mortgages so that seniors can stay in their homes, not force them out!

Question 24

MISCONCEPTIONS -- Does my non-borrowing spouse have to leave the home if I pass away?

Accepted Answer

No. Since 2005, the rules for non-borrowing spouses have become much more friendly. Now, eligible non-borrowing spouses can remain in the home even after the borrower has passed away. The loan repayment is delayed until the non-borrowing spouse leaves the home on his/her own volition.

Question 25

STRATEGY -- Can I refinance a reverse mortgage?

Accepted Answer

Yes, refinancing a reverse mortgage is sometimes referred to as a H2H refi or a HECM-to-HECM refinance. You many want to refinance a reverse mortgage for the following reasons:

1. You wish to add your spouse to the reverse mortgage.
2. You wish to change the terms of your loan, including the interest rate.
3. Your property value has increased.
4. The reverse mortgage cap increased because you entered into a reverse mortgage before 2008, when the Federal Housing Administration (FHA) had a lower cap.

Question 26

STRATEGY -- Why do a reverse mortgage versus a Home Equity Line of Credit (HELOC)?

Accepted Answer

For the same home, you can only do a reverse mortgage or a Home Equity Line of Credit (HELOC), not both, as both use the home as collateral for the loan.

In general the reasons to do a reverse mortgage instead of a HELOC are as follows:
1. Qualifying -- It’s easier to qualify for a reverse mortgage. HELOCs generally require a steady stream of income that many seniors do not have. 
2. Growing Line of Credit -- With a reverse mortgage, the line of credit grows over time. This is not the case for a HELOC. 
3. Security -- A reverse mortgage’s line of credit can’t be canceled, frozen, or reduced as a HELOC’s can be. 
4. Speed -- By law, a reverse mortgage must deliver funds within five days of a drawdown. HELOC’s don’t have such a requirement. 
5. Flexibility -- A reverse mortgage is more flexible with respect to mortgages repayments. Assuming the borrower is in good standing, the loan generally does not come due until the borrower passes away or moves out of the home. With a HELOC repayments are generally required immediately.

Question 27

STRATEGY -- If I don't need the money now, does it make sense to enter into a reverse mortgage?

Accepted Answer

Despite not needing the money immediately, you may wish to enter into a reverse mortgage today for the following reasons:
1. Home Value -- You believe your home value may decline.
2. Interest Rates -- You believe interest rates may rise.
3. Qualifying -- You may have a more difficult time qualifying for a reverse mortgage in the future.
4. Line of Credit -- You wish to maximize the compounding effect of the reverse mortgage's line of credit.

Question 28

STRATEGY -- Can I set up a reverse mortgage even if I don’t have a lot of equity in my home?

Accepted Answer

Yes, you can set up a reverse mortgage even if you do not have a lot of equity in your home. This situation is sometimes referred to as a "short to close" whereby the borrower brings additional funds to the closing.

Question 29

STRATEGY -- What is a non-conventional reverse mortgage?

Accepted Answer

Non-conventional (or proprietary) reverse mortgages are those offered by private institutions that are not backed by the Federal Housing Administration (FHA). Each private institution will have their own lending guidelines. Let’s break down some typical pros and cons of going with a conventional versus a non-conventional reverse mortgage.

On the positive side, a non-conventional reverse mortgage may be less strict in terms of requirements. For example, the loan capacity could be higher, the distribution limit in year one could be higher, the age limit could be lower, Mortgage Insurance Premium may be lower, and property standards may be lower.

On the negative side, a non-conventional reverse mortgage typically has higher fees, a lower credit capacity (called the Principal Limit Factor, or PLF), and may have less attractive line of credit growth rates, duration rates, or draw periods.

Question 30

STRATEGY -- What if my home appreciates after I enter into a reverse mortgage?

Accepted Answer

First off, congrats! In general, as the value of your home increases, your equity in the home increases. If you have a reverse mortgage and choose to do nothing as the equity in your home appreciates, your heirs will inherit more equity.

Alternatively, you may choose to refinance the reverse mortgage, which will increase your ability to borrow against your home.

Reverse Mortgage FAQs