Reverse Mortgage FAQs
A reverse mortgage is a loan for people age 62 and older. It allows homeowners to convert their home equity into cash amounts without any monthly mortgage payments. Therefore, a homeowner with considerable home equity can borrow sum against their home. They can get it as a credit amount or as a fixed monthly income. For more information visit our What is a reverse mortgage page.
The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA) reverse mortgage program. It is the popular type of reverse mortgage. Seniors can withdraw their funds either in a fixed monthly salary or a line of credit or a combination of both.
- The minimum age for HECM reverse mortgage should be 62.
- Availability of financial resources to cover insurance, maintenance, and tax expenses.
- Occupy the property as a principal residence.
- There should not be any previous federal debt.
Yes, you can use the cash from a reverse mortgage to buy a new home. It is your money and you have the right to use it anywhere you want. The only condition is that that you should be the primary residence of home for which you get reverse mortgage.
The reverse mortgage offers both fixed as well as variable interest rates. In the fixed interest rate, access to cash from the loan is limited. In this you only allow to withdraw ten percent of the principal amount.
Adjustable rate gives flexibility to the borrower on the access of home equity. With this, the borrower must put all funds after the payoff into a line of credit or tenure.
The cost of a reverse mortgage depends on the type of loan, lender you choose and how much money you take out upfront. Instead of selling your home and move, a reverse mortgage loan is a more efficient option as it allows the owner to access a portion of their home.
Usually, reverse mortgage loan repay when the borrower dies or leave the home forever. Also, you need to pay back the loan when fail to pay taxes or insurance or make needed repairs.
There are no monthly mortgage payments because any existing mortgage is paid off at closing using the proceeds from the reverse mortgage loan.
No there are no limits on how you can use the reverse mortgage money. You can use the funds without restriction. However, you may need to set some amount aside to pay taxes and insurance.
In reverse mortgage the lender will typically be financial institutions including banks, building a society or credit union. However, bank and other lenders are not interested in the home their main concern is originating loans and earning interest.
When a person with a reverse mortgage dies, the heirs can inherit the house. But their property will not be free from the title of reverse mortgage. According to federal law, the mortgage must remain the same without any changes when passes from one person to another after death.
The reverse mortgage loan is made to help the homeowner to stay in their home. Thus, it will not force you out of the home as long as you are the primary resident.
Generally, social security and Medicare are not affected by a reverse mortgage. However, need-based programs like Medicaid may get affected, to know more consult your financial advisor and appropriate government agencies.
Loan proceeds are not a part of income, thus this amount isfree from tax. However, you need to pay property taxes continuously. For more information on this, you can contact your financial advisor or government agencies.
Reverse mortgage and home equity loan both use the home’s equity as a security. Moreover, eligibility for both is also the same. But, there is some difference between them which are as follows.
- The home equity loan must be repaid over 5 or 10 years. Whereas reverse mortgage loan is generally repaid after the death of the borrower.
- The closing cost of a reverse mortgage is more than a home equity loan.
First, you should inform the servicer of the loan about the death of the borrower. You can check the monthly statement to get the contact details of the servicer. The servicer will check the situation and will guide you for the next step. We also wrote a blog post about this here: What happens When You Die With A Reverse Mortgage?