REVERSE MORTGAGE LOAN
What is a Reverse Mortgage Loan?
A reverse mortgage loan is a loan that lets you take out a large percentage of the equity in your home without having to pay it back until you move out of your home or sell it. It is only available to older homeowners and can help you supplement your retirement.
Reverse Mortgage Guidelines
Reverse mortgage guidelines are quite simple and direct. First, you must be at least 62 years old. Second, your home must contain a significant amount of equity. Third, if you have a mortgage on your home, it should be of an amount that you could use the reverse mortgage to pay it off. Fourth, the home must be your primary residence.
* You do not have to provide credit information because you will not be making any payments on the reverse mortgage loan.
Reverse Mortgage Pros and Cons
It is important to review reverse mortgage pros and cons before you decide to take out a reverse mortgage on your home.
Reverse Mortgage Pros
- You can live in your home
- Your name stays on the home’s title
- Provides a supplement to your retirement
- Cannot be taxed as income
- The lender cannot take your home
- You cannot outlive the loan
- Can repay the loan at any time without penalty fees
Reverse Mortgage Cons
- Higher interest than other loans
- Interest accrues during the lifetime of the loan
- Costs to create a reverse loan are high
- Homeowner must pay all taxes and insurance for the loan
How Does a Reverse Mortgage Work ?
If you have a large amount of equity in your home, you can apply for a reverse mortgage loan and there are three types available.
- Government sponsored reverse mortgages – Fannie Mae offers its own version of a reverse mortgage called a Home Keeper®. This loan helps senior home owners stay in their home and provides them with additional financial support. It is designed for home owners that fall into the low to medium income level.
- Federally insured reverse mortgages – Another reverse mortgage option that Fannie Mae invests in is the U.S. Department of Housing and Urban Development (HUD) reverse mortgage, which is called a Home Equity Conversion Mortgage. This loan is insured by the FHA (Federal Housing Administration) and guarantees that you will never owe more than the loan amount. If your property drops in value, only the value of the property needs to be paid on the mortgage if it is lower than the amount of the reverse mortgage.
- Proprietary reverse mortgages – These are reverse mortgages which are issued by private lenders and their features and options can vary.
Once you are approved, you can choose to be paid the amount in one payment or span the payments into monthly payments. Use the money on whatever you want – a dream vacation, supplement to government benefits, paying off debt, paying off your home’s mortgage, medical care, etc.
The loan does not become due until you move out of the home, sell the home, or until you have passed away. A lender cannot force you to sell your home and the title remains in your name.
REVERSE MORTGAGE FAQ
What are the disadvantages of reverse mortgages?
There are several reverse mortgage disadvantages that you should evaluate before taking out one. You will be paying a higher interest rate than on other loans, have less equity in your home, and you may run out of the money sooner than you think.
Is a reverse mortgage always the best option?
No. Reverse mortgages come due if you move out of your home or sell it. If you are planning to eventually live in a retirement community, a reverse mortgage may not be a good idea.
Who are reverse mortgages designed for?
Older home owners with sufficient home equity.
What are the advantages of reverse mortgages?
A reverse mortgage loan lets you remain in your home, provides financial support, and allows you to choose how much you want to use (up to a specified percentage of the equity).
What are the rules for a reverse mortgage loan?
Reverse mortgage rules require that you be at least 62 years old, the home must be your primary residence, and any existing mortgages can be paid off with the new loan.
What is the difference between reverse mortgages and other mortgages?
You are under no obligation to make any payments on the reverse mortgage as long as you live in the home. Other mortgages require monthly payments.
How old do you have to be to qualify?
You must be at least 62 years old.
What housing type qualifies for a reverse mortgage loan?
Any primary residence qualifies, including condominiums.
What housing types don’t qualify for a reverse mortgage loan?
Secondary homes, vacation homes, investment properties.
What is the difference between a reverse mortgage and a home equity loan?
A reverse mortgage loan requires no income proof and no monthly payment. A home equity loan requires proof of income and requires monthly payments.
What happens if you outlive the loan?
You cannot outlive a reverse mortgage as long as you remain in the home.
Does money from a reverse mortgage affect pension or social security benefits?
No.
Is the interest on a reverse mortgage loan deductible at tax time?
The interest cannot be counted as a tax deduction until the loan and interest is repaid.
What happens when the loan is repaid?
Any accrued interest or other costs that were added to the loan must be paid off.
Will I ever owe more than my home is worth?
No.
Can a lender take my home?
No.
Do I have to sell my property to repay the loan?
No. Your heirs can refinance the reverse mortgage loan as a conventional loan or you can repay the loan through other methods.
Can I get a reverse mortgage if I have an existing 2nd or 3rd mortgage?
Yes, as long as the mortgages can be paid off with the reverse mortgage.
How do I get paid from my reverse mortgage?
There are three choices lump sum, monthly cash payment, or a line of credit.
Does my credit history affect my ability to qualify for a reverse mortgage?
No.
Can a reverse mortgage be refinanced?
Yes.
Can I get a reverse mortgage on a vacation home or investment property?
No only primary residences are eligible.
Still Have Questions About Reverse Mortgages? We have an in-house Reverse Mortgage Specialist ready to help!
If you are a TEACHER, MILITARY, FIREFIGHTER, POLICE, CORRECTIONS, NURSE, DOCTOR, DENTIST MEDICAL ASSISTANT, CNA, Etc, you may qualify for the Homes for Heroes program!
You can reach me, Travis Newton, Homes for Heroes Mortgage Lender Affiliate in Salem Oregon at 503.931.4490 or on the Oregon Homes For Heroes Facebook page.
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