Reverse mortgage questions and answers| 1-800MyMoney.com

Questions about Reverse Mortgages

"Home Equity Conversion Mortgage" (HECM)

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Q: What is a reverse mortgage?

Q:What is the value of a Reverse Mortgage?

Q: Can I qualify for a HUD reverse mortgage?

Q: Am I qualified for a reverse mortgage if I currently have an existing loan on my home?

Q: What types of homes are eligible?

Q: What's the difference between a reverse mortgage and a bank home equity loan?

Q: Can the lender take my home away if I outlive the loan?

Q: Will I still have an estate that I can leave to my heirs?

Q: How much money can I get from my home?

Q: How do I receive my payments?

Q: How is a reverse mortgage different?

Q: Who can get a reverse mortgage?

Q: How much cash can you get?

Q: What happens to your debt?

Q: Why is it called "reverse"?

Q: When do you pay it back?

Q: What do you owe?

Q: What is the out-of-pocket cost?

A: A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. A reverse mortgage loan is for seniors 62 years old and above. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage provides these benefits, and it is federally-insured as well.

A: Only you can decide what a reverse mortgage is worth to you. It probably depends most on what you would use one for: increasing your monthly income, having a cash reserve (creditline account) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life. It may be helpful in evaluating the worth of a reverse mortgage to consider a major alternative: selling your home and moving.

Do you have any idea how much money you could get by selling your home? What it would cost to buy & maintain or rent a new one? How much you could safely earn on sale proceeds not used for a new home? You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find.

Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be. Either way, looking will give you a much better idea of the overall costs and benefits of staying versus moving.That will give you a better sense of what's valuable to you. And make it easier to evaluate the cost of a reverse mortgage.

A: To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan.

A: Yes, but the existing loan must be paid off prior to or at the settlement of the reverse mortgage. Quite often the reverse mortgage is used to pay off or refinance an existing loan.

A: Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

A: With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

A: No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

A: When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.

A: The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

A: You have five options:

Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term - equal monthly payments for a fixed period of months selected.
Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.

Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

A: To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So your income generally has nothing to do with getting the loan or the amount of the loan.

With most home loans, if you fail to make your monthly repayments, you could lose your home. But with a reverse mortgage, you don't have any monthly repayments to make. So you can't lose your home by failing to make them.

A: You must own your home, and generally all of the owners must be at least 62 years old.

Your home generally must be your "principal residence" - which means you must live in it more than half the year.

For the federally-insured "Home Equity Conversion Mortgage" (HECM), your home must be a single-family property, a 2-4 unit building, or a federally-approved condominium or planned unit development (PUD). For Fannie Mae's "HomeKeeper" mortgage, it must be a single family home, PUD, or condominium.

Reverse mortgage programs generally do not lend on cooperative apartments or mobile homes, although some "manufactured" homes may qualify if they are built on a permanent foundation, classed and taxed as real estate, and meet other requirements.

If you have any debt against your home, you must either pay it off before getting a reverse mortgage or - this is what most borrowers do - use an immediate cash advance from the reverse mortgage to pay it off. If you don't pay off the debt beforehand, or do not qualify for a large enough immediate cash advance to do so, you cannot get a reverse mortgage.

A: The amount of cash you can get depends on the age(s) of the owner(s), the value (and in some cases the location) of the home, and current interest rates. In general, the most cash goes to the oldest borrowers living in the homes of greatest value at a time when interest rates are low. On the other hand, the least cash generally goes to the youngest borrowers living in the homes of lowest value at a time when interest rates are high.

As an immediate cash advance at closing, that is, a lump sum of cash paid to you on the first day of the loan

A creditline account that lets you take cash advances whenever you choose during the life of the loan - until you use it all up

OR as a monthly cash advance

for a specific number of years that you select,
OR for as long as you live in your home,
OR - if you use the loan to buy an annuity - for the rest of your life, no matter where you live

OR as any combination of immediate cash advance, creditline account, and monthly cash advance

A: It grows larger and larger as you keep getting cash advances, make no repayment, and interest is added to the amount you owe (your "loan balance").

That's why reverse mortgage are called "rising debt, falling equity" loans. As the amount you owe (your debt) grows larger, your equity (that is, your home's value minus any debt against it) generally gets smaller.

In a "forward" mortgage (the kind you normally use to buy a home), your regular monthly repayments make your debt go down over time until you have it all paid off. Meanwhile, your equity is rising as you owe less and less, and as your property value grows (appreciates). So forward mortgages are "falling debt, rising equity" loans - just the opposite of reverse mortgages.

Here's another way to think of it. In a forward mortgage, you use debt to turn your income into equity. In a reverse mortgage, you use debt to turn your equity into income. You are reversing the deal you used to buy your home. Then, you had income and wanted equity. Now, you have equity and want income. In both cases you use debt to turn what you have into what you want.

A: When the last surviving borrower dies, sells the home, or permanently moves away. "Permanently" generally means you have not lived in your home for 12 months in a row.

You might also have to pay it back if you fail to pay your property taxes, fail to keep up your homeowner's insurance, or let your home go to waste. But if you do, the lender may be able to make extra cash advances to cover these expenses.

A: The total amount you will owe at the end of the loan (your "loan balance") equals:

1. All the cash advances you've received (including any that were used to pay loan fees or costs)

2. Plus all the interest on them -

3. You can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are generally "nonrecourse" loans, which means that in seeking repayment the lender does not have recourse to anything other than your home. Not your income, your other assets, or your heirs.

A: The out-of-pocket cash cost to you is most often limited to an application fee that covers a property appraisal (to see how much your home is worth) and a minimal credit check (to see if you are delinquent on any federally-insured loans).

Most of the other costs can be "financed" with the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe - and pay interest on.

If a lender charges an origination fee that is greater than the amount that can be financed with the loan, you have to pay the difference in cash at closing.

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