WHAT IS A REVERSE MORTGAGE?
AND OTHER COMMON QUESTIONS
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What is a
reverse mortgage?
It
is a government insured loan
against your home that requires
no repayment for as long
as you live there. The
loan can be taken all at
once, but can also be taken,
as you need it. The
reverse mortgage is aptly
named because the payment
stream is “reversed”. Instead
of making monthly payments
to a lender as you would
with a traditional mortgage
or home equity loan, the
lender makes payments to
YOU. |
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Why
is the reverse mortgage also
sometimes referred to as
a HECM?
HECM
stands for Home Equity Conversion
Mortgage. It is a special
type of mortgage program
available to homeowners who
want to utilize the equity
in their homes without the
need for repayment of the
loan for as long as they
continue to occupy the home
as a primary residence. |
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Do I still
own my home with a reverse
mortgage?
YES! While
the reverse mortgage loan
is outstanding, you continue
to own the home and hold
title to it. |
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Who is eligible
for a HECM?
The
following are the requirements
for the HECM:
- The homeowners must own
their home and be at
least 62 years old;
- There are NO
credit/income requirements.
- The home must be the “principal
residence” which
means that the homeowner
lives in the home more
than half of the year;
- The home must be a single
family home, a 2-4 unit
building or a federally
approved condominium
or planned unit development;
and
- If there is debt against
the home, then the homeowner
must use the reverse
mortgage to pay it off.
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Can I get
a reverse mortgage if I’m
in financial trouble?
Yes. A
reverse mortgage can be used
to pay off mortgages and
prevent a foreclosure, pay
delinquent taxes and any
other debts you decide to
pay off with the proceeds
from the loan. Ideally,
a reverse mortgage should
provide enough cash flow
so that you will stay out
of financial trouble in the
future. |
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How do reverse
mortgages differ from regular
mortgage or home equity loans?
Answer:
- With a traditional mortgage
or a home equity loan you
will be required to prove
that you have sufficient
income and credit history
to qualify, and you will
begin repaying the loan within
30 days of closing.
- With a reverse mortgage,
there are no monthly payments
to be made at any time during
the loan for as long as you
continue to occupy the home
as a primary residence. Since
there is no monthly payment,
the FHA does not require
verification of your income
and does not require
a good credit rating.
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What are
the benefits of a reverse
mortgage over a regular mortgage?
- No credit or income requirements.
- No monthly repayments of
any kind for as long as you
live in your home;
A guaranteed monthly stream of income
or credit line to use whenever you
need it.
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Can I use
a reverse mortgage to Purchase
a home?
Yes! As
of January 1, 2009, the reverse
mortgage can be used to finance
the purchase of a home. There
are no credit or income requirements
to qualify, and it can make a
home purchase possible for
a senior that otherwise would
not qualify for traditional
financing. The senior will
not be required to make a
monthly mortgage payment
for as long as they live
in the home. Down
payment requirements vary based on the age of the youngest borrower, the
expected interest rate, and
the value of the home. |
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Will I have
to pay any fees to obtain
a HECM?
Yes. The
out-of-pocket cash cost to
you is most often limited
to the cost of the property
appraisal which determines
the value of your home, as
well as the cost of a reverse
mortgage counseling session
with a HUD approved counselor.
The other costs may be included
in your loan balance so that
you do not have to pay them
in cash. You will pay
an origination fee, ordinary
closing costs and an FHA
mortgage insurance premium
of 2% up-front and a ½%
annual FHA renewal premium
on the outstanding balance
of the loan. |
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Will the
money I receive affect my
Social Security or other
benefits?
The
monies received are not considered
income, but rather, they
are loan advances. It
will not affect eligibility
for retirement, survivor,
disability or Medicare benefits
payable under the Social
Security Act. However,
eligibility for need-based
programs, such as Supplemental
Security Income (SSI) could
be affected if advances are
not spent in the month received.
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Are
there any restrictions on
the use of the money I will
receive? For
example: Can I just
buy a new car or take a trip
each year to visit my grandchildren?
The money from a reverse mortgage
can be used for ANYTHING! We do
not ask any questions regarding the
use of your funds. This is
YOUR equity. It is your
money to spend as you wish.
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Will
I have to sell or vacate my home
if the money I owe on the loan
exceeds the value of my home?
Absolutely not! As long as you continue
to live in your home as your primary residence, you will never be asked to
sell or move out of your home. The FHA insurance you acquire in connection
with the mortgage covers any potential financial obligation to your lender. |
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Are
there any other special requirements?
Yes. You
must agree to participate
in a mortgage counseling
session with a Department
of Housing and Urban Development
(HUD) approved counseling
agency. This government
counseling service is meant
to assist you in understanding
the HECM loan program so
that you can be comfortable
in knowing whether or not
a HECM is right for you. This
counseling can be done over
the phone, and friends and/or
family members are also encouraged
to listen in on the counseling
session with you. |
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How
much can I borrow?
The
maximum amount that can be
borrowed is based on a HUD
formula that factors in the
age of the youngest borrower,
the average expected interest
rate, and the current value
of your home. The amount
may be limited by mortgage
insurance limits for the
area where your home is located
as established by the Federal
Housing Authority (FHA).
Loan amounts on a reverse
mortgage are anywhere between
50-85% of the value of the
home. The loan amount
can be taken in whatever
increments that the borrower
chooses. |
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What
types of payment plans are
available with a HECM?
You
can choose a combination
of these payment plans:
- TENURE: You
receive equal monthly
payments for as long
as you occupy your home
as your principal residence.
- LINE of CREDIT: You
have a maximum amount
of cash available to
draw upon at any time
and in the amounts of
your choosing.
- TERM: You
receive equal monthly
payments for the fixed
period of time that you
select.
- Lump Sum: You
can take all or part
of the principle loan
limit as a lump sum payment
at closing.
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May
I switch payment plans in
the future?
Yes,
for a nominal fee, you may
switch payment plans at any
time. |
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Can
we pay part or all of the
loan balance?
You
or you heirs may repay the
loan in part or in full any
time at any time without
penalties. Upon inheritance
of the property, your heirs
may choose to refinance and
keep the property. They may
also elect to sell the property
at fair market value and
satisfy the loan balance
at closing. |
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Will
my heirs owe anything to
the mortgage lender after
I’m gone?
If
the principle balance of
the loan amount is greater
than the home’s value,
any outstanding debt balance
will be forgiven. The
FHA insures that you or your
heirs will never be left
a debt. |
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If
my home’s value appreciates
during the mortgage term then
who will be entitled to that money?
Under the terms of a HECM, you are only required
to pay back the outstanding balance of your loan.
You or your heirs are entitled to any and all
appreciation in the value of your home that
exceeds the loan balance. |
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What
if I decide to sell my home?
If
you choose to sell your home,
the outstanding loan balance
will have to be satisfied
at closing as with any mortgage
lien. You will receive
any proceeds from the sale
that exceeds the loan balance. |
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Why
should I go to Lakeland Bank
to learn more about reverse
mortgages?
Will they help me decide if a reverse
mortgage is right for me?
Lakeland Bank has developed
the Senior Solutions
Workshop™ series in conjunction
with Intercounty Mortgage
government loan specialists,
financial consultants,
and Elder law attorneys
in order to provide solutions
that help ensure their
clients’ golden
years are truly golden. “We are
helping our clients make
smart choices so they remain
financially healthy, productive,
and secure. This is becoming
increasingly important as
78 million baby boomers are
beginning to enter their
60’s.” said
Thomas Shara, president and
CEO of Lakeland. |
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Are
there other financing options
that I should consider?
Reverse
mortgages may not be the
best choice in some situations,
such as in a short term financial
need. In fact, many
clients who inquire about
a reverse mortgage discover
a better solution from a
traditional mortgage product
or equity line of credit. “When
we meet with seniors and
family members, we present
a comparison of all the financing
options available, and that
discussion is critical in
helping a senior decide which
loan product is best for
them” said Sandra Rostek,
vice president, reverse mortgage
division, Intercounty Mortgage.
We also explain that the
best use of a reverse mortgage
is so people can stay in
the home for the rest of
their lives, and the loan
often times makes the difference
between having to move or
stay.
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Should
I consult with my attorney?
Yes. If
you have your own attorney,
we will be happy to supply
the information they will
need to advise you in the
decision making process. If
you do not have your own
attorney, a local Elder law
attorney is available as
part of the consultation
process. An attorney can
help guide clients through
the process and oversee reverse
mortgage closings. An attorney
experienced in Elder Law
provides valuable insight
to seniors in order to make
the best decision. |
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