Frequently Asked Questions || How Do Reverse Mortgages Work
Types of Reverse Mortgage Loans || RM's as an Estate Planning Tool
How Much Money Can You Borrow || Long Term Care and Reverses
 

FREQUENTLY ASKED QUESTIONS
    
There are NO Credit, NO Income and NO Health Requirements.
 
What is a Reverse Mortgage?
    
A reverse mortgage is a special type of home loan that allows a homeowner convert a portion of the value in his or her home into cash. The value 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.
 
Can I qualify for a HUD Reverse Mortgage?
       
To be eligible for a HUD Reverse Mortgage, HUD's Federal Housing Administration requires that you are a homeowner 62 years of age or older and that you meet with a HUD-approved counseling agency -- to make sure you understand what a HUD Reverse Mortgage will mean for you.

Do I have to pay income tax on the proceeds?
         
Proceeds received from a reverse mortgage are loan advances and not taxable income. For your specific situation, we recommend that you consult your tax advisor.
 
Will this income affect my Social Security or Medicare benefits?
    
NO. Money from a reverse mortgage is not considered income, nor does it affect Social Security or Medicare. Homeowners on SSI or Medicaid should observe pertinent rules.
 
What types of homes are eligible?
        
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 condominiums to qualify under the Spot Loan program. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
 
How much money can I get from my home?
        
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.
 
How do I receive my money?
     
You have 4 options:
 
  Lump Sum
  Monthly Payments (your choice of loan advances for a specific period, or for
    as long as you live in your home)
  Line of Credit (unscheduled payments or in installments, at times and in
    amounts of borrower's choosing until the line of credit is exhausted)
  Any combination you would like of the above three choices
 
Can the lender take my home away if I outlive the loan?
    
No! Nor is the loan due. 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.
 
Will I still have an estate that I can leave to my heirs?
    
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 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.

Types of REVERSE MORTGAGE Loans

Several distinct equity release products that offer the flexibility to customize a reverse mortgage specific to your financial needs and objectives. Loan Advisors will work with you and your advisors to help you assess your individual situation and choose the product that best meets your needs.

HECM (Home Equity Conversion Mortgage)
This type of loan represents 90% of all Reverse Mortgages!

• Guaranteed by FHA/HUD
• Flexible Income Payment Option
• Growing Line of Credit
• Maximum Lending Limit  (Varies by City and County)

HomeKeeper by Fannie Mae

• Guaranteed by Fannie Mae
• No Line of Credit Growth
• Generally lower closing costs and money available
• Maximum Lending Limit $417,000

Private Cash Account
(Contact us for availability in your state)

• Flexible Income Payment Options
• Growing Line of Credit
• Generally has higher closing costs
• Generally for homes well over $600,000
• No Maximum Lending Limit

Basic Loan Features
Although there are different types of reverse mortgages, all of them are similar in certain ways. Here are the features that most have in common.

Homeownership
With a reverse mortgage, you remain the owner of your home just like when you had a forward mortgage. You are still responsible for paying your property taxes and home-owner insurance and for making property repairs.

When the loan is over, you or your heirs must repay all of your cash advances plus interest. Lenders don't want your house; they want repayment.

Financing Fees
You can use the money you get from a reverse mortgage to pay the various fees that are charged on the loan. This is called "financing" the loan costs. The costs are added to your loan balance, and you pay them back plus interest when the loan is over.

Loan Amounts
The amount of money you can get depends on the specific reverse mortgage program you select. It also depends on the kind of cash advances you choose.

Debt Payoff
Reverse mortgages generally must be "first" mortgages, that is, they must be the primary debt against your home. So if you now owe any money on your property, you generally must either :

• pay off the old debt with the money you get from a reverse mortgage

• or pay off the old debt before you get a reverse mortgage

Most reverse mortgage borrowers pay off any home debt with a lump sum advance from their reverse mortgage. Credit cards, car payments and other unsecured debt is not required to be paid off.

Debt Limit
The debt you owe on a reverse mortgage equals all the loan advances you receive (including any you used to finance the loan or to pay off prior debt), plus all the interest that is added to your loan balance. If that amount is less than your home is worth when you pay back the loan, then you (or your estate) keep whatever amount is left over.

You can never owe more than what your home is worth at the time the loan is repaid. The lender may not seek repayment from your income, your other assets, or from your heirs.

(The technical term for this cap on your debt is a "non-recourse limit." It means that the lender does not have legal recourse to anything other than your home's value when seeking repayment of the loan.)

Repayment
All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. (Typically, a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.)

Reverse mortgage lenders can also require repayment at any time if you:

• fail to pay your property taxes;

• fail to maintain and repair your home; or

• fail to keep your home insured.

These are fairly standard "conditions of default" on any mortgage. On a reverse mortgage, however, lenders generally have the option to pay for these expenses by reducing your loan advances and using the difference to pay these obligations. This is only an option, however, if you have not already used up all your available loan funds.

Cancellation. After closing a reverse mortgage, you have three (3) days to reconsider your decision. If for any reason you decide you do not want the loan, you can cancel it. But you must do this within three business days after closing. "Business days" include Saturdays, but not Sundays or legal public holidays.

If you decide to cancel, you must do it in writing, using the form provided by the lender, or by letter, fax, or telegram. It must be hand delivered, mailed or faxed before midnight of the third business day. You cannot cancel by telephone or in person. It must be written.

How Much Can You Borrow
 
The size of reverse mortgage loans is determined by the borrower's age, the interest rate, and the home's value.

The older a borrower, the larger the percentage of the home's value that can be borrowed.
 
For example, based on a loan at today's low interest rates, a 65-year-old could borrow up to 60 percent of the home's value, a 75-year-old could borrow up to 70 percent of the home's value, and an 85-year-old could borrow almost to 80 percent of the home's appraised value --- up to the FHA loan limit for each city and county.

There are also no restrictions on the value of the homes qualifying for a HUD reverse mortgage. However, the amount that may be borrowed is capped by the maximum FHA Lending Limit for each county varying from $200,160 in rural areas to $362,790 in many major metropolitan areas (and even higher in Alaska, Hawaii & the U.S. Virgin Islands) depending on local housing costs.
 
You should discuss the formula with your lender and your FHA-approved housing counselor.  For example, based on a loan at recent interest rates, a 65-year-old could borrow up to 60 percent of the home's value, a 75-year-old could borrow up to 70 percent of the home's value, and an 85-year-old could borrow almost to 80 percent of the home's appraised value --- up to the FHA loan limit for each city and county.

When do I repay the loan?
Reverse mortgages are designed to eliminate the burden of making monthly mortgage payments. The loan will not be due until you no longer occupy your home as your principal residence. At that time, the money you have borrowed plus the interest and fees will be due and payable. Generally, borrowers or their estate repay the loan by selling the home. If the home is sold, you or your estate may keep the proceeds in excess of the amount due the lender.

How reverse MORTGAGES work

A Reverse Mortgage is a "Safe and Highly-Regulated Program" to give older American Homeowners greater financial security. The program allows homeowners age 62 and older to use their home value while maintaining ownership, without creating a monthly debt.

Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Homeowners whose circumstances change can restructure their payment options.
 
Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold or refinanced by the heirs. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.
 
There are no asset or income limitations on borrowers receiving HUD's reverse mortgages.
 
There are also no limits on the value of homes qualifying for a HUD reverse mortgage. However, the amount that may be borrowed is capped by the maximum FHA loan limit for each city and county varies from $200,160 in rural areas to $362,790 in many major metropolitan areas (and even higher in Alaska, Hawaii & the U.S. Virgin Islands) depending on local housing costs."
 
HUD's reverse mortgage program collects funds from insurance premiums charged to borrowers. Senior citizens are charged 2 percent of the home's value as an up-front payment plus one-half percent on the loan balance each year. These amounts are financed by the lender and charged to the borrower's principal balance.
 
FHA's mortgage insurance guarantees to the borrowers that they will continue to receive their loan proceeds even if the Lender goes bankrupt.  The FHA insurance also guarantees Lenders that they will get their money back with interest and fees even if the homeowners outlive the longevity tables or the property values decrease.  Thus while the FHA mortgage insurance increases the initial cost of getting a HECM reverse mortgage, it also allows the Lenders to sell HECM reverse mortgages at interest rates well below those of FannieMae and private lenders." 

REVERSE MORTGAGES AS AN ESTATE PLANNING TOOL
 
The Reverse Mortgage should be considered as an integral part of the estate plan. As a non-recourse loan that releases home equity and converts it into tax-free cash, there are no restrictions on the use of the proceeds, the borrower continues to own the home and no monthly payment is required for as long as the borrower resides in the home.
 
Funding for Healthcare or Long-Term Care Insurance  Most Americans recognize the need for a long-term care insurance program to both protect their assets and relieve any potential burden on their family. Many Seniors, when faced with this situation are forced to use their savings or impact their monthly income for long-term care coverage. A reverse mortgage allows seniors to stay in their homes, be self-sufficient, and not deplete existing savings or income.
 
Maximize Legacy Asset Transfer While a home may hold a great amount of emotional value for a family, the reality is that in most cases, the property is sold after the owner’s death. The heirs are often forced to sell the property in a volatile real estate market with no guarantees. After the sale, which may drag on due to market conditions, heirs may be faced with inheritance and/or capital gain taxes on the proceeds. The net proceeds are often less than the perceived value of the home. If a reverse mortgage is used to purchase life insurance, this scenario typically translates into greater wealth transfer to the heirs.
 
Provide Funding for Estate Taxes
   
When the tax-free equity release is used to fund life insurance products, a reverse mortgage is a creative and effective way to secure the future for heirs. It gives homeowners, particularly those with substantial wealth built up in their homes, the comfort of having more control over their estate and assuring the legacy they leave retains its value by:
 
Lowering the total estate value subject to taxes.
   
Providing life insurance for the homeowner’s heirs to pay estate taxes.

REVERSE MORTGAGES HELP PAY FOR LONG-TERM CARE

The aging baby boom generation has been described as a coming earthquake that will shake the foundation of the long-term care system.
 
The preliminary findings of a new study under development by The National Council on the Aging (NCOA) shows that using reverse mortgages to pay for long-term care (LTC) at home has real potential in addressing what remains a serious problem for many older Americans and their families.
   
Out of 27.5 million elder U.S. households (age 62+) 15 million could qualify for a reverse mortgage. And of that total 13.2 million are candidates for using reverse mortgages to pay for LTC at home, according to the study, which is being funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation.
   
The 13.2 million LTC target households have accumulated $1.9 trillion in home equity. Using mortgage rates for the week of 2/2/04, NCOA concluded that $953 billion of home equity could be tapped through the reverse mortgage program to finance seniors' long-term care needs, or $72,128 per household.
     
The preliminary findings are part of the NCOA’s National Blueprint for Increasing the Use of Reverse Mortgages for Long-Term Care. The blueprint will offer new insights into the potential market for reverse mortgages along with recommendations for administrative action, regulatory changes, consumer protections, and demonstration programs.
 
Up until now, most seniors have not tapped the equity in their homes—estimated at some $1.9 trillion—to pay for home modifications that support aging in place or for healthcare services at home. Noting that the average income of men aged 65 and over is $28,000 and $15,000 for women. This study shows that unlocking these resources can help millions of  house rich, cash poor’ seniors purchase the long-term care services they feel best suit their needs.
   
Identifying Hazards In the Home
Many seniors are beginning to think about ways their homes can be modified to adapt for current or future age-related concerns. Solutions for problems often exist but people are not always aware that products, or often simple changes, can be incorporated into the home that provide greater safety and accessibility.