Reverse Mortgages - A Tool for Retirement

With the cost of living rising and people living longer…. Retiring is a big decision. People ask…..

Will I outlive my income?

Will my retirement be comfortable?

Can I afford to keep my home?

What is a Reverse Mortgage?

Consider a Reverse Mortgage

If you own your own home and are at least 62 years of age, a reverse mortgage provides an opportunity to convert some of your home equity into cash. In the most basic terms, a reverse mortgage allows you to take out a loan against the equity in your home where you do not have to repay the loan during your lifetime as long as you are living in the home and have not sold it. If you want to increase the amount of money available to fund your retirement, but do not like the idea of making payments on a loan, a reverse mortgage is an option worth considering. However, there are also some risks, costs, and pitfalls to be aware of.

A reverse mortgage allows older homeowners to convert their home equity value into cash.

Several types of reverse mortgages exist, optimized for different purposes or goals.

There are also several different options for how to receive the money from the reverse mortgage.

Benefits of a Reverse Mortgage Loan

A reverse mortgage loan may help you enjoy financial security and peace of mind, and allow you to remain in your home during your retirement years.You have the freedom to use the net proceeds however you deem necessary. For example, you can use your proceeds to:

Supplement your retirement income

Consolidate debt

Pay for medical care, prescription drugs and in-home care

Cover large or unexpected expenses

Make home improvements

Travel to visit family and friends or take vacations

Gifts for the children/grandchildren

Live a more comfortable lifestyle

Eligibility Requirements

Some of the key eligibility requirements for a reverse mortgage loan are:

All owners on title must be age 62 or older

The home must be your principal residence

You must have sufficient equity in your home

You must meet financial eligibility criteria as established by HUD

You must complete a HUD-approved counseling session

Your home must be a single-family residence, a two-to-four unit owner-occupied home, a condominium or a manufactured home

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Resources

There are many misconceptions about reverse mortgages so these booklets below may answer your family’s questions.

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Developing Your Reverse Mortgage Retirement Plan

by Integrity Mortgage Solutions

Download

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Reverse Mortgage Self-Evaluation

by National Reverse Mortgage Lenders Association

Download

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What Do I Do When My Loan is Due?

by National Reverse Mortgage Lenders Association

Download

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What You Need to Know About Your HECM After Closing

by National Reverse Mortgage Lenders Association

Download

Pros and Cons

Rising property values have created the largest asset owned by families.This nest egg for homeowners….could only be accessed through a loan and years of payments …or a sale.Now you can have the best of both worlds….without a sale and no payments.Decisions Decisions….

Option

Delay retirement or return to work

Pros

Your continue earning income to pay for your financial obligations

Cons

You may be unable or unwilling to continue working because of poor health or other reasons

Sell your house and downsize

You eliminate or reduce your current mortgage payment and maintenance.

You may want to stay in your current home. You may still have a mortgage. Closing costs add to your financial burden.

Obtain a home equity loan or refinance your existing mortgage

You remain in your home. You may e able to lower your monthly mortgage payments and even pay off other debts.

You must still pay your monthly mortgage, plus closing costs for the equity loan.

Decrease expenses and modify your lifestyle

You eliminate unnecesary expenses and reduce your monthly cash outflow.

It may be difficult to cut back if you are already living frugally, or you may not want to sacrifice some comforts.

Obtain a Home Equity Conversion Mortgage (HECM)

You remain in your home. You eliminate your monthly mortgage payment and may have additional fund for expenses or financial goals.

The loan balance grows over time and the value of your estate may decrease over time. Closing costs add to your financial burden

Reverse Mortgage FAQ

Obtaining a reverse mortgage loan is a big decision. It’s normal for you and your family to have questions and hopefully the answers below can help put your mind at ease.

What is a reverse mortgage loan?

A reverse mortgage is a loan that allows you to access a portion of your home equity without having to make monthly mortgage payments. With this type of loan, you maintain the title to your home. The loan typically becomes due when the last borrower(s) permanently leave the home or the borrower(s) fail to meet the loan obligations. You’ll never repay more than the appraised value of your home when the loan comes due, so long as the home is sold to repay the loan.

If no monthly payments are required, how is my reverse mortgage loan paid back?

To pay off the loan balance, you or your heirs can sell the home or you can pay the loan balance and keep the home.

How do I qualify for a reverse mortgage loan?

To qualify, you must be age 62 or older and be the titleholder to your home. In addition, you must have sufficient equity in your home and you must meet financial eligibility criteria as established by HUD.

What if I have an existing mortgage?

If you currently have a mortgage, that’s okay. However, a portion of the funds you receive from your reverse mortgage loan (or funds from another source) must be used to pay off any existing mortgage you have on the property at closing.

Is my home eligible?

Your home must be a single-family residence, a 2- to 4-unit dwelling, a FHA-approved condominium, or a manufactured home that meets FHA requirements.

Will I still own my home or will I lose it?

You will still own your home and you can stay in it for as long as you wish, provided you continue to occupy your home as your primary residence, pay your property taxes and insurance, and maintain the home according to FHA requirements.

Are there property and insurance requirements?

Since you still own your home with a reverse mortgage loan you’re responsible for the general maintenance and upkeep as well as for paying all ongoing property taxes and insurance. You can often pay for these expenses with funds from your reverse mortgage loan.

What types of loans are available?

All of our loans are Home Equity Conversion Mortgages (HECM). Always ask to see a comparison of various loans so you have a complete understanding of what is available.

How much of my home’s equity can I access with a reverse mortgage loan?

The loan amounts vary based on a number of factors including which reverse mortgage loan product you choose. The amount you can receive depends on the age of the youngest borrower, current interest rates, and the lesser of the appraised value of your home, the sale price or FHA maximum lending limit. You may need to set aside additional funds from the loan proceeds to pay for taxes and insurance.

How can I use the money?

After paying off any existing mortgage, the money you receive from your reverse mortgage loan can be used any way you choose such as paying for medical expenses (including in-home care), home improvements, and living expenses. There are no limitations or restrictions, once you receive the net proceeds.

What costs are involved with a reverse mortgage loan?

As with any loan, there are closing and other costs. However, most fees can be financed as part of the loan. The HUD counseling fee is the only out-of-pocket cost.

Will I have to pay any taxes?

Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

Will this loan affect my Social Security or Medicare benefits?

HECM reverse mortgage loan payments typically do not affect your Social Security or Medicare benefits. However, regulations vary for the Federal Supplemental Security Income program and for state-administered programs such as Medicaid, Aid for Dependent Children (AFDC), and food stamps. We suggest that you consult 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.

How will I receive the available funds?

The most common way is to draw from a line of credit to use at your discretion. However, you may also choose to receive a single lump sum, regular monthly installments, or any combination of these options.

Will my family or estate ever owe more than the value of my home?

No. With a reverse mortgage loan you’ll never repay more than the appraised value of your home when the loan comes due, so long as the home is sold to repay the loan.

What if I want to leave our home to the kids?

You can still leave it to your children, or to anyone you choose. When the loan becomes due, you or your heirs have the option of paying off the full balance of the loan and keeping the home.

Will I incur any penalties if I decide to pay back the loan early?

No. You can pay back the loan at any time without the worry of being penalized.

If my parents have a reverse mortgage, what should I do in the event of their passing?

You should first contact the loan servicer to notify them that the borrower(s) have passed away. You can typically find the servicer’s contact information on the monthly statement. Once the loan servicer has been notified, they will help you (the heirs) with next steps.