Reverse Mortgage FAQs
A reverse mortgage is a financial tool which allows seniors to convert the equity in their homes into cash in their hands. Depending on age, and equity specifics, a reverse mortgage works based on the concept of relinquishing one’s equity to the bank in return for eliminating mortgage payments, and even receiving significant cash payments.
No. A reverse mortgage is a non-recourse loan, or a loan which requires no repayment. This is why it is referred to as a reverse mortgage. Instead of making payments in an effort to repay a loan like most conventional loans, the reverse mortgage pays you, and the loan is due only after death of the last surviving spouse.
Yes. Many conservative clients choose to continue to make their mortgage payments even though they are not required. You may make all, half, or even a fraction of your payments in an effort to keep the loan balance from increasing.
No! This is one of the biggest myths of the reverse mortgage product. Even if you live to 125 years of age, the bank can never take the home from you. As long as property taxes, insurance and necessary maintenance repairs are made, the loan will only come due after death of the last surviving spouse.
Yes. Cash received from a reverse mortgage is simply “icing on the cake.” The main motivation for many qualified seniors is for the guaranteed elimination of their mortgage payments for the rest of their life.
Cash received from a reverse mortgage varies greatly. Some clients qualify simply for the elimination of their mortgage payments, while others receive over $400,000. The average client receives close to $130,000, plus the life-long benefit of no mortgage payments.
There are many different payment plans for receiving your cash proceeds from a reverse mortgage. For most money available the line of credit is the most popular. Other options include the lump sum option where the entire sum of money is given at the time of closing, fixed monthly payments, or a combination of these.
An average reverse mortgage costs close to $13,000, and is paid from the proceeds of the loan. That being said, with some reverse mortgages costs are much lower. A big part of the cost is the FHA Insurance that can be from .5% to 2.5% of the value of the home but no more than $625,000 HUD limit. The FHA Insurance is what makes this a very safe mortgage.
No. The money you receive from a reverse mortgage is yours, and can be used for whatever you like. Many seniors invest the money, use it for a dream vacation, apply it to home renovations, and set it aside for long term in-home health care, while others sleep with it safely under their mattress.
Both you and your spouse have to be 62 years of age or older. There are some exceptions where a spouse can be under 62 and a loan can still be done safely.
Equity is quite simply the difference between the appraised value of your home, and the loan amount owed on the property. For example, a $250,000 home with a loan amount of $150,000 has $100,000 of equity.