Reverse Mortgage: What is it and How Can it Benefit me
What is a reverse mortgage?
Reverse mortgages enable homeowners age 62 or older to convert their home’s equity into available cash – a lender advances you money (the loan) based upon the equity in your home. The amount of money you are eligible to receive generally depends upon the amount of equity in your home and your age at the time you get the loan. With a reverse mortgage, you remain the owner of your home.
What are the Requirements for a Reverse Mortgage?
As with any home, you must continue to pay property taxes and homeowner’s insurance. You are also responsible for maintaining your home in good condition. You will not have to repay your loan balance as long as you live in your home. You must repay a HECM loan in full when the last surviving borrower dies or sells the home. You can choose to pay off the loan through the sale of the property or pre-payment of the loan at any time without penalty. Your estate may retain ownership of the property and must pay off the loan in full or the property can be sold to an unrelated party for the lesser of the unpaid mortgage balance or 95% of appraised value.
Types of Reverse Mortgages
There are several types of reverse mortgages available, including monthly and annually adjusting interest rate loans as well as fixed interest rate loans. Borrowers can decide to take a line of credit with flexible draw-down options, a term loan with fixed monthly payments for a specified number of years, or a tenure plan with guaranteed payments for life.
How can a Reverse Mortgage Help Senior Homeowners?
Seniors can benefit from a reverse mortgage by using their home to get a tax-free income stream that you can access based on home equity. It eliminates your monthly loan repayment while allowing you to stay in your home. A reverse mortgage can help create an income stream for the rest of your life and give you housing security. A.R.C.’s HUD-Certified Housing Counselors can walk you through these options and help you understand if any of them are right for your situation.
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What are the Risks of a Reverse Mortgage?
Homeowners with a reverse mortgage cannot relocate to a different residence or the loan balance will become due and payable. They must also stay up to date on homeowners insurance, taxes, and any interest payments. When the mortgage holder is no longer living in the home, the loan must be refinanced, paid off or the home sold.
Reverse mortgage loan advances are not taxable and do not affect Social Security or Medicare benefits. However, you must be careful that any loan proceeds you retain do not exceed the monthly liquid resource limits for Supplemental Security Income (SSI) and Medicaid, which may be impacted by your HECM payments.
Reverse Mortgage Scams
Some reverse mortgage offers are not legitimate. Seniors should only work with agencies that are HUD-Certified, and be wary of anyone who proactively contacts them with a reverse mortgage offer. More information on reverse mortgage scams can be found at HUD OIG.gov.
What to Expect at Your Reverse Mortgage Consultation
Only you can decide if a reverse mortgage is right for your situation. The counselor will provide information to assist you in making that decision, including considering other options available to meet your needs other than a reverse mortgage. These options include: selling your home and moving to a more suitable residence, renting, as well as other financial options and support services and public benefits that may be available to you in your community. The fee for a Reverse Mortgage Certificate, required to close on a reverse mortgage loan is $150.
What you will discuss at your appointment:
- Your current financial needs
- Housing security
- How reverse mortgages work
- Impact on you and any heirs
- Other assistance you may be eligible for
Your consultation is the beginning of a process. We want to make sure you understand your options every step of the way.
A Reverse Mortgage Can…
- Create a tax-free income stream for life
- Provide security to remain in your home
- Eliminate loan payments during your lifetime
- Access cash for the down payment on a new residence
Options upon Death:
- Sell the home to retrieve the remaining equity
- Payoff the balance to retain family home ownership
- Refinance the balance with a traditional mortgage to retain family home ownership
Let A.R.C.’s HUD-Certified Housing Counselors review your options to put a reverse mortgage to work for you.
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