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Reverse Mortgages

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Welcome to my compendium website on  a Reverse Mortgage and Reverse Mortgages. This site will give information and frequently asked questions for seniors who are looking to use the equity in their home over a period of time to help them finance their daily living costs. There are disadvantages and advantages of using a reverse mortgage. Read below and apply it to your situation. Important words found on this site: Reverse Mortgages Mortgage Information Advantages, Disadvantages, Equity, Finance, Insurance, Appraisal Fee, Closing Costs, Home Loan, Forward,  Debt,  Conversion, Repayment, Eligible, Cashing, Consumer, Cash,   Owe,  Taxes, Borrowing,  Investing, Bank Loan, Estate, Money, Lender, Heirs, Value

You can find this site again  by typing in the  Google search engine  the unique word " 1esreveR "  which is  OR " Reverse1 " backwards.

 

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About Reverse Mortgages  
Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, apply to reverse mortgages too. You can expect to be charged an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs.

In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage. Below is a more in-depth explanation of each type of fee.

Origination FeeThe origination fee covers a lender's operating expenses—including office overhead, marketing costs, etc.—for making the reverse mortgage.
Under the HECM program, which accounts for 90 percent of all reverse mortgages made in the U.S., the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount (i.e., county FHA loan limit). Currently, the FHA loan limit varies from a low of $200,160 (for rural areas) to a high of $362,790 (for high-cost metropolitan areas). Therefore, the 2 percent origination fee generally ranges between $4,003 (2 percent of $200,160) and $7,256 (2 percent of $362,790).

Home Keeper borrowers are charged an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.

Mortgage Insurance Premium
Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 0.5 percent of the loan balance.

The MIP guarantees that if the company managing your account – commonly called the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid.

Appraisal Fee
An appraiser is responsible for assigning a current market value to your home. Appraisal fees generally range between $300-$400.

In addition to placing a value on the home, an appraiser must also make sure there are no major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations mandate that your home be structurally sound, and comply with all home safety codes, in order for the reverse mortgage to be made.

If the appraiser uncovers property defects, you must hire a contractor to complete the repairs. Once the repairs are completed, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made. Appraisers generally charge $50-$75 dollars for the follow-up examination.

Closing Costs
Other closing costs that are commonly charged to a reverse mortgage borrower, include:

  • Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: Generally under $20
  • Flood certification fee. Determines whether the property is located on a federally designated flood plane. Cost: Generally under $20
  • Escrow, Settlement or Closing fee. Generally includes a title search and various other required closing services. Cost: $150-$450
  • Document preparation fee. Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $75-$150
  • Recording fee. Fee charged to record the mortgage lien with the County Recorder's Office. Cost: $50-$100
  • Courier fee. Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: Generally under $50
  • Title insurance. Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance.
  • Pest Inspection. Determines whether the home is infested with any wood-destroying organisms, such as termites. Cost: Generally under $100
  • Survey. Determines the official boundaries of the property. It's typically ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrower's property. Cost: Generally under $250

Service Fee Set-Aside
The service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account.

Federal regulations allow the loan servicer (which may or may not be the same company as the originating lender) to charge a monthly fee that ranges between $30-$35. The amount of money set-aside is largely determined by the borrower's age and life expectancy. Generally, the set-aside can amount to several thousand dollars.
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A New Kind of Loan: In Reverse

A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:

  • all at once, in a single lump sum of cash;
  • as a regular monthly cash advance;
  • as a "creditline" account that lets you decide when and how much of your available cash is paid to you; or
  • as a combination of these payment methods.

No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.

Other Home Loans

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 you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.

With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no repayment for as long as you — or any co-owner(s) — live in the home. So they differ from other home loans in these important ways:

  • you don't need an income to qualify for a reverse mortgage; and
  • you don't have to make monthly repayments on a reverse mortgage.

"Forward" Mortgages

You can see how a reverse mortgage works by comparing it to a "forward" mortgage — the kind you use to buy a home. Both types of mortgages create debt against your home. And both affect how much equity or ownership value you have in your home. But they do so in opposite ways.

"Debt" is the amount of money you owe a lender. It includes cash advances made to you or for your benefit, plus interest. "Home equity" means the value of your home (what it would sell for) minus any debt against it. For example, if your home is worth $150,000 and you still owe $30,000 on your mortgage, your home equity is $120,000.

Falling Debt, Rising Equity

When you purchased your home, you probably made a small down payment and borrowed the rest of the money you needed to buy it. Then you paid back your traditional "forward" mortgage loan every month over many years. During that time:

  • your debt decreased; and
  • your home equity increased.

As you made each repayment, the amount you owed (your debt or "loan balance") grew smaller. But your ownership value (your "equity") grew larger. If you eventually made a final mortgage payment, you then owed nothing, and your home equity equaled the value of your home. In short, your forward mortgage was a "falling debt, rising equity" type of deal.

Rising Debt, Falling Equity

Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage:

  • your debt increases; and
  • your home equity decreases.

It's just the opposite, or reverse, of a forward mortgage. With a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your home's value is growing at a high rate.

When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your home's value decreases, there may not be any equity left at the end of the loan.

In short, a reverse mortgage is a "rising debt, falling equity" type of deal. But that is exactly what informed reverse mortgage borrowers want: to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments. There's more about this important concept in an article called "A 'Rising Debt' Loan" in the Basics section of this site.

Exception

Reverse mortgages don't always have rising debt and falling equity. If a home's value grows rapidly, your equity could increase over time. Or, if you only get one loan advance and no interest is charged on it, your debt would never change. So your equity would grow as your home's value increases. But most home values don't grow at consistently high rates, and interest is charged on most mortgages. So the majority of reverse mortgages end up being "rising debt, falling equity" loans.
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Seriously Consider Selling

Many homeowners become interested in reverse mortgages so they can stay in their own homes. Selling their homes and moving elsewhere are generally not very appealing to most older people.

The single best way to evaluate a reverse mortgage is to compare it to what may be your only real option: selling your home and using the proceeds to buy or rent a new home. Do you know:

  • How much cash you could get by selling your home?
  • What it would cost you to buy (and maintain) or rent a new home?
  • How much money you could safely earn on any money left over after you buy a new home?
  • Have you recently looked into buying a less costly home, renting an apartment, or moving into assisted living or other alternative housing?

Until you have seen and considered other housing options, how do you know that another housing choice wouldn't be better for you than a reverse mortgage? For your own peace of mind, look into what else might be available. It doesn't hurt to explore all your options before making a decision.

Most likely you will come to one of two conclusions:

  • you may find another housing option that is a lot more attractive than you thought; or
  • you may confirm what you were fairly certain of all along: that where you live now is the best place for you to be.

No matter what you conclude, you will have a much better idea of the overall costs — and benefits — of staying versus moving. That will give you a better sense of what is most important to you. And then it should be easier for you to evaluate the costs and benefits of a reverse mortgage
 Eligibility & Repayment

The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage insured by the federal government. HECM loans are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD).

The FHA tells HECM lenders how much they can lend you, based on your age and your home's value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations.

HECMs Versus Other Reverses

HECM loans generally provide the largest loan advances of any reverse mortgage. HECMs also give you the most choices in how the loan is paid to you, and you can use the money for any purpose.

Although they can be costly, HECMs are generally less expensive than privately-insured reverse mortgages. Other reverse mortgages may have smaller fees, but they generally have higher interest rates. On the whole, HECMs are likely to cost less in most cases.

The only reverse mortgages that always cost the least are ones offered by state or local governments. These loans typically must be used for one specific purpose only, for example, to repair your home, or pay your property taxes. They also generally are available only to homeowners with low to moderate incomes.

Who is Eligible

HECM loans are available in all 50 states, the District of Columbia, and Puerto Rico. To be eligible for a HECM loan:

  • you, and any other current owners of your home, must be aged 62 or over, and live in your home as a principal residence;
  • your home must be a single-family residence in a 1- to 4-unit dwelling, a condominium, or part of a planned unit development (PUD). Some manufactured housing is eligible, but cooperatives and most mobile homes are not;
  • your home must meet HUD's minimum property standards, but you can use the HECM to pay for repairs that may be required; and
  • you must discuss the program with a counselor from a HUD-approved counseling agency.

Repaying a HECM

As with most reverse mortgages, you must repay a HECM loan in full when the last surviving borrower dies or sells the home. It also may become due if:

  • you allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem; or
  • all borrowers permanently move to a new principal residence; or
  • the last surviving borrower fails to live in the home for 12 months in a row because of physical or mental illness; or
  • you fail to pay property taxes or hazard insurance, or violate any other borrower obligation

Reverse Mortgages:
Get the Facts Before Cashing In On Your Home’s Equity

Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse” mortgages. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.

Three Types of Reverse Mortgages
The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.

HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. The counselor must explain the loan’s costs, financial implications, and alternatives. For example, counselors should tell you about government or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area.

The amount of money you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, current interest rates, and where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

The HECM gives you choices in how the loan is paid to you. You can select fixed monthly cash advances for a specific period or for as long as you live in your home. Or you can opt for a line of credit, which allows you to draw on the loan proceeds at any time in amounts that you choose.You also can get a combination of monthly payments plus a line of credit.

HECMs generally provide larger loan advances at a lower total cost compared with proprietary loans. But owners of higher-valued homes may get bigger loan advances from a proprietary reverse mortgage. That is, if you have a higher appraised value without a large mortgage, then you may likely qualify for greater funds. Location (for example, your neighborhood) is only one part of the determination of appraised value.

Loan Features
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.
As you consider a reverse mortgage, be aware that:

  • Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender generally sets these fees and costs.
  • The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases over time as loan funds are advanced to you and interest accrues on the loan.
  • Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions.
  • Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.
  • Because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property taxes or maintain homeowner’s insurance, you risk the loan becoming due and payable.
  • Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.

Getting a Good Deal
If you are considering a reverse mortgage, shop around to compare your options and the offered terms. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. It will help you ask more informed questions, which could lead to a better deal.

  • If you want to make a home repair or improvement or need help paying your property taxes, you may want to find out if you qualify for any low-cost single-purpose loans that may be available in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call toll-free, 1-800-677-1116. Ask the AAA for information about available “loan programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs.
  • If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD rules, and that many of the loan costs including the interest rate will be the same no matter which lender you select. Still, some costs including the origination fee, other closing costs, and servicing fees may vary among lenders.
  • If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. But it generally will cost more. The best way to see key differences between a HECM and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits. Many HECM counselors and lenders can provide you with this important information.
  • No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse mortgage, including all itemized costs.

Be a Savvy Consumer
Be cautious if anyone tries to sell you something, like an annuity, and suggests that a reverse mortgage would be an easy way to pay for it. If you don’t fully understand what they’re selling, or you’re not sure you need what they’re selling, be even more skeptical.

Keep in mind that your total cost would be the cost of what they’re selling plus the cost of the reverse mortgage. If you think you need what they’re selling, shop around before you buy.

No matter why you decide to take a reverse mortgage, you generally have at least three business days after signing the loan documents to cancel it for any reason without penalty. Remember that you must cancel in writing. The lender must return any money you have paid so far for the financing.

Reporting Possible Fraud
If you suspect that anyone is violating the law, let the counselor, lender, or loan servicer know. Then, file a complaint with:

  • your state Attorney General’s office or state banking regulatory agency, and
  • the Federal Trade Commission (FTC). You can do that online at ftc.gov or by phone, toll-free, at 1-877-FTC-HELP
    (1-877-382-4357).

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less costly alternatives. Contact the following organizations for more information:
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Frequently Asked Questions (FAQs)

What's a reverse mortgage?
How's it different?
Who can get one?
How much cash can you get?
How's it paid to you?
How much total cash?
What happens to your debt?
That why it's called "reverse"?
When do you pay it back?
What do you owe?
What's the most you can owe?
How do you pay it?
What's left?
What's the out-of-pocket cost?
What are the other costs?
What's the total cost?
How does the total cost vary?
What's that mean?
What's it worth?
What about public benefits?
What about taxes?
What about "borrowing"?
What about "spending"?
What about "investing"?
How should you shop?
Where should you look?
What should you ask?What's a reverse mortgage?

A loan against your home that requires no repayment for as long as you live there.  

 How's it different?

  • 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.

Who can get one?

  • 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.

How much cash can you get?

The amount of cash you can get from a reverse mortgage depends on the program you select and - within each program - on your age, home, and interest rates.

  • It can vary by a lot from one program to another. A typical consumer might get $30,000 more from one program than from another. But no single program works best for everyone.
  • For all but the most expensive homes, the federally-insured "Home Equity Conversion Mortgage" (HECM) generally provide the most cash.
  • Within each program, 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.

But remember, the total amount of cash you actually end up getting from a reverse mortgage will depend on how it's paid to you plus other factors.   

How's it paid to you?

That's up to you. You could take it

  • 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

Use our Calculator to estimate how much cash you could get from a reverse mortgage.

How much total cash?

  • If you take a creditline account, the total amount of cash you actually get will depend on two things: how much of your available creditline you use, and whether the creditline is "flat" or "growing."
  • With a flat creditline, the amount of remaining available credit at any time only changes if you take a cash advance, at which point it decreases by the amount of the advance. For example, if you have a flat $50,000 creditline and take out $10,000, you would have $40,000 left whenever you decided to take more.
  • But with a growing creditline, your remaining available credit grows larger by a given rate. For example, if you took $10,000 from a $50,000 creditline that grows by 8% each year, and then came back for more three years later, there would then be over $50,000 left to use - because the remaining $40,000 growing at 8% per year would become $50,388 after three years.
  • So a growing creditline can give you a lot more cash over time than a flat one. That’s why you need to look at more than the size of a credit-line when a reverse mortgage starts. You also should consider how much available credit would be left in the future. This will also depend, of course, on how much you take out and when you take it.
  • The creditline in the Home Equity Conversion Mortgage (HECM) program grows larger each month by the same rate as the one being charged on the loan balance. It keeps growing for as long as there is any credit left, that is, until you withdraw all your remaining credit.
  • Fannie Mae's HomeKeeper creditline is flat. The remaining available credit does not increase. 
  • Our Calculator shows you the initial annual rate at which HECM creditlines are currently scheduled to grow. It also shows you how much available credit would be left after 5 and 10 years if you you didn't draw any prior to then.
  • If you take monthly loan advances, the total amount of cash you actually get will depend on whether you select a plan that sends them to you for a specific number of years, or for as long as you live in your home. It will also depend how long you actually live in your home.
  • If you use a reverse mortgage to buy an annuity, the total amount of cash you actually get will depend on how long you live - no matter where you live. The net value of that cash to you, however, may depend on other factors (see "What About Public Benefits?" below and "ALERT: Annuities").

What happens to your debt?

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.  

That why it's called "reverse"?

  • Yes. 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.

When do you pay it back?

  • 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.
    Just remember, reverse mortgage borrowers are still homeowners and therefore are still responsible for taxes, insurance, and upkeep.    

What do you owe?

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

  • all the cash advances you've received (including any that were used to pay loan fees or costs)
  • plus all the interest on them -
  • up to the loan's "nonrecourse" limit (see answer to next question).

Interest rates can change based on changes in published indexes. But the more adjustable they are, the lower they start – so they give you larger cash advances. And they will be lower than less adjustable rates all during the time that index rate changes don’t exceed the caps on the less adjustable rates.

What's the most you can owe?

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.

So even if you receive monthly loan advances until you are aged 115, your home declines in value between now and then, and the total of monthly advances becomes greater than your home's value - you can still never owe more than the value of your home. If you or your heirs sell your home in order to pay off the loan, the debt is generally limited by the net proceeds from the sale of your home.

How do you pay it?

  • If you sell and move, you would most likely pay back the loan from the money you get from selling your home. But you could pay it back from other funds if you had them.
  • If the loan ends due to the death of the last surviving borrower, the loan must be repaid before the home's title can be transferred to the borrower's heirs. The heirs could repay the loan by selling the home, using other funds from the borrower's estate or their own funds, or by taking out a new forward mortgage against the home.

What's left?

Not all reverse mortgage borrowers end up living in their homes for the rest of their lives. Some who expect to remain living there change their minds. Others face later health problems that require a move.

So it makes sense to plan for the possibility that you may sell and move some day. How much equity would be left if you did?

  • If, at the end of the loan, your loan balance is less than the value of your home (or your net sale proceeds if you sell), then you or your heirs get to keep the difference. The lender does not "get" the house. The lender gets paid the amount you owe, and you or your heirs keep the rest.
  • IMPORTANT: If you take the loan as a creditline account, be sure to withdraw all remaining available credit before the loan ends. You will have the money sooner that way, and it could be more than otherwise might be left. For example, a growing creditline could become greater than the leftover equity in some cases.
  • If you have purchased an annuity and then sell your home, you could continue receiving monthly annuity advances for the rest of your life. If the loan ends due to the death of the last surviving borrower, and if the annuity purchased by the borrower includes a death benefit or "period certain" payments, then the annuity's beneficiaries would receive additional cash.

What's the out-of-pocket cost?

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.

What are the other costs?

  • The specific cost items vary from one program to another.  Many of them are of the same type found on "forward" mortgages: interest charges, origination fees, and whatever third-party closing costs (title search & insurance, surveys, inspections, recording fees, mortgage taxes) are required in your area. Other types of costs can be more exotic, and unique to reverse mortgages: monthly servicing fees, "equity-sharing" fees, "shared appreciation" fees, "maturity" fees.
  • Although total loan costs between the HECM and HomeKeeper programs can vary enormously, many of the individual cost items within each program do not vary from one lender to another. Within each program, the costs that may be different from one lender to another are generally the origination fee and the servicing fee. So if you've decided on HECM you want to get the best deal, these are the specific fees to compare.
  • The largest total cost differences you will find are the ones between different programs, for example, between the HECM and HomeKeeper programs. But it is virtually impossible to evaluate or compare the true, total cost of reverse mortgages unless you consider their Total Annual Loan Cost (TALC) rates.

What's the total cost?

Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes ALL of the costs and benefits, and also takes into account the nonrecourse limits.

This Total Annual Loan Cost (TALC) disclosure shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend.

How does the total cost vary?

On any given loan, TALC rates depend on two major factors: time and appreciation.

  • TALC rates are generally greatest in the early years of the loan and decrease over time, for two reasons 1) the initial fees and costs become a smaller part of the total amount owed, and 2) the likelihood increases that the rising loan balance will catch up to - and then be limited by - the nonrecourse limit.
  • TALC rates also depend on changes in a home's value over time. The less appreciation, the greater the likelihood will be that a rising loan balance will catch up to  - and then be limited - by the home's value. On the other hand, when a home appreciates at a robust rate, the loan balance may never catch up to (and be limited by) it. 

What's that mean?

If you end up living in your home well past your life expectancy or your home appreciates at a low rate, you might get a true bargain. But if you die, sell, or move within just a few years or your home appreciates a lot, the true cost could be very high.

There's no way of avoiding this fundamental risk. You just have to understand it in general, assess the potential range of TALC rates on a specific loan, and decide if it's worth the benefits you expect you'll get from the loan.

Just remember, TALC rates are not really comparable to the Annual Percentage Rates (APRs) quoted on "forward" mortgages because

  • unlike APRs, TALC rates include all the costs
  • unlike APRs, TALC rates do not assume you take all of the loan on the first day (if they did, TALC rates would be much closer to APRs)

It's also important to remember that you get benefits from a reverse mortgages that you don't get from a "forward" mortgage:

  • no monthly repayments, and no repayment of any kind for as long as you live in your home
  • an open-ended monthly income guarantee, or a guaranteed creditline (which may grow larger until you use it all)
  • a total debt limit equal to the net value of your home  (even if it's less than what your loan balance would otherwise have been), no matter how long you live, and no matter what happens to the value of your home

So you may pay more for a reverse mortgage. But the benefits are not available on any other type of debt. And - if you live long, or if your property value doesn't grow much - you can end up with a lower than expected cost.

If you are considering a creditline, however, you need to know that official TALC disclosures do not account for the added value of growing creditlines. If you are a couple, you need to know that official TALC disclosures are all based on the life expectancy of single owners. The total cost rates generated by NCHEC's Calculator correct these shortcomings.

One more key point: lenders don't have to show you TALC rates on a loan until after you apply for it. So if you want to see and compare true, total costs before you apply, be sure to deal with Sources that can meet your information needs. Ask them for a Personal Reverse Mortgage Analysis showing you all your choices - including TALC rate comparisons generated by NCHEC software.

What's it worth?

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?

NCHEC's Personal Reverse Mortgage Analysis estimates how much cash you could spend on housing each month using proceeds from the sale of your home. So look into other housing options. Seeing your housing alternatives first-hand and in-person may help you decide about a reverse mortgage. 

  • 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.

Also take a look at other financial and services options that you may prefer to - or combine with - a reverse mortgage.

What about public benefits?

Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs count loan advances differently than annuity advances.

  • Loan advances generally do not affect your benefits if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a "liquid asset." If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility.
  • Annuity advances reduce SSI benefits dollar-for-dollar, and can make you ineligible for Medicaid. So if you are considering an annuity, and if you are now receiving - or expect someday you may qualify for - SSI or Medicaid, check with the SSI, Medicaid, and other program offices in your community. Get specific details on how annuity income would affect these benefits.

What about taxes?

An American Bar Association guide to reverse mortgages advises that generally

  • the IRS does not consider loan advances to be income
     
  • annuity advances may be partially taxable
     
  • interest charged is not deductible until it is actually paid, that is, at the end of the loan.

What about "borrowing"?

Many of us have been well served by these borrowing cautions:

  • don't borrow in general
  • don't borrow against your home in particular
  • "Don't Borrow" Borrowing usually means using money you haven't earned yet. You borrow today in the hope that you will be able to earn enough in the future to repay it. So you are borrowing against your uncertain future earnings - which sounds like "counting your chickens before they hatch." That's generally not a good idea unless you have a steady job and good prospects.

But this caution doesn't really apply to reverse mortgages because you are not borrowing against future income. In fact, you are borrowing against home equity that you have already earned. So you aren't counting your chickens before they hatch. You are hatching the nest egg you've already earned.

  • "Not Against Your Home" Borrowing against your home usually means paying back a loan every month. But if you lose your job or your income drops, you could miss some payments and lose your home to foreclosure. That's why it's generally not a good idea to borrow against your home unless it's for a very basic purpose. You want avoid jeopardizing your home ownership.

But this caution doesn't apply to reverse mortgages either, because no monthly repayment is required. You can't lose your home by missing a payment because there are none to make.

What about "spending"?

Many of us have also been well served by these spending cautions: "You don't know how much you will need and how long you will live. So don't spend your savings. Wait till you really need them."

Makes a lot of sense. But - if you literally followed these cautions forever, you would never use any of the money you spend a lifetime building up. And that doesn't make much sense. Why go to the trouble of earning it and saving it if you're never going to use any of it? So in retirement, this spending caution should be amended:

  • when should you consider using how much savings?
  • which savings (for example, home equity)?

As amended, this caution clearly does apply to reverse mortgages. Because the more home equity "savings" you use now, the less you'll have later. So the questions now become:

  • If you ever do take a reverse mortgage, should you do it now or wait until later to decide? (In the future, you may be eligible for more cash because you will be older and your home may be worth more. On the other hand, interest rates may be higher, and that would decrease the amount otherwise available.)
  • If you take one now, how should you take it: creditline, monthly, or a combination? If you take a creditline, how much of it should you use now versus later? If you take a monthly advance, should you select a specific number of years, for as long as you live in your home, or should you buy an annuity providing lifetime advances no matter where you live?

A lot might depend on how much cash you'd qualify for today. Click Calculator for an estimate.

What about "investing"?

Should you take a lump sum of cash from a reverse mortgage and invest it someplace? Except for purchasing a sound annuity, that's generally a lousy idea - unless, of course, you can afford to lose money.

Remember, to come out ahead on any investment, you'd have to earn a greater rate of return on it than the TALC rate you are paying on the reverse mortgage. And the odds against doing that safely are mighty long.

A much better alternative is to take a HECM creditline. You only get charged interest on the cash advances you've actually taken, and the remaining available credit grows larger every month. And this growth is not an "interest" earning, so you are not taxed on it.

How much could you get in a HECM creditline, and by what rate would it begin growing? Click Calculator for an estimate.

How should you shop?

First, take a look a look at the Alerts to make sure you realize how important it is to be careful. Then try the Calculator to find out how much cash you could get and what it would cost. If the numbers interest you, click Guidance to learn how to get a free Personal Reverse Mortgage Analysis from selected Sources. Also investigate important related alternatives or supplements to reverse mortgages. 

What should you ask?

Ask selected Sources for an individually-customized, 12-page "Personal Reverse Mortgage Analysis." Read it carefully, and ask questions about it. But don't stop there.

Click Software to see all the additional information NCHEC's "Reverse Mortgage Counselor" software can generate for you. Ask the "what-if" questions it can answer in detail. For example:

  • If your are interested in a growing creditline:
    "If I took out this much cash now and that much cash then (tell them how much and when), how much cash would remain available to me at various future times, and how would that compare with the remaining cash in a flat creditline?"
  • If you want to see how total loan costs compare:
    "Can you show me a chart that graphs
    the TALC rates on these loans?
  • If you want to see how your debt and equity
    would change over time    :
    "Can you show me a chart that graphs my future debt and leftover equity on a specific loan?"

    "What would I owe and how much equity would I have left if I sold and moved at various future times?

    "How would those figures change if you assume the value of my home grows at the average annual appreciation rate for my state over the past year, past five years, or since 1980?" (Or any other rate you choose.)

  • If you are a single male or a couple:
    "TALC rates assume all borrowers are single females. What would the rates be if they were based on the life expectancy of a single male my age (or of a couple our ages)?"
  • If you are interested in monthly advances:
    "TALC rates do not take into account the value of an annuity beyond the end of a loan. What would the rates be if they did?"
Text Box:  

Top Ten Things to Know if You're Interested in a Reverse Mortgage
 


Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and Urban Development (HUD) created one of the first. HUD's Reverse Mortgage is a federally-insured private loan, and it's a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. You can receive free information about reverse mortgages by calling AARP at: 1-800-209-8085, toll-free. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

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. 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.

2. Can I qualify for a HUD reverse mortgage?

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. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.

3. Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.

4. 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 individual condominiums units to qualify under the Spot Loan program.

5. What's the difference between a reverse mortgage and a bank home equity loan?

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."

6. Can the lender take my home away if I outlive the loan?

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.

7. 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, 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.

8. 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.

9. Should I use an estate planning service to find a reverse mortgage?

I've been contacted by a firm that will give me the name of a lender for a "small percentage" of the loan? HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.

10. How do I receive my payments?

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.

Guarding the Golden Years. Reverse Mortgages

What is a Reverse Mortgage?

A Reverse Mortgage is a popular, but complex, home loan just for senior homeowners. If you qualify for a Reverse Mortgage, you will not have to make monthly payments on the loan. Instead, the lender pays you. Typically, the Reverse Mortgage is repaid from your home’s equity when you sell the home, move out permanently, or die. You, or those who will inherit from you, can keep any sales proceeds from your home in excess of what you owe the lender.

To qualify for a Reverse Mortgage, you must be a homeowner who is at least 62years old. The mortgage on your home must be fully or nearly paid off. Generally, the amount you can borrow depends on the value of your home, the amount of equity you have in the home, and your age at the time of loan application.

For example, one of the many reverse mortgage plans available would allow a75-year old homeowner with a home worth $200,000 to borrow $73,201. A 95-yearold homeowner would be able to borrow $210,573 under the same plan.

Choosing the right Reverse Mortgage can give you greater financial independence and reassurance during your golden years. Choosing the wrong plan could lead to financial disaster.

A word of caution: If you choose a plan that requires repayment on a specific date, known as a "fixed-term" Reverse Mortgage, you must be sure that you will have the money to repay the loan on that date. Otherwise, you may have to sell your home and move in order to repay the loan.

Take advantage of free, local Reverse Mortgage counseling to make the rightchoice. Please refer to the list of Resources at the end of this brochure.
 

How Do I Know If a Reverse Mortgage Is Right For Me?
 

A Reverse Mortgage may be right for you if:

  • you have a regular need for additional living funds;
  • you live on a fixed income, and your only asset is your home equity;
  • you do not plan to leave your home to your children or others who will inherit from you.
     

Consider alternatives to a Reverse Mortgage if:

  • you want to leave your home, free and clear, to your children or others who will inherit from you;
  • you have another, less costly means to reach your financial goal. A Reverse Mortgage can be an expensive way to borrow money.

What Are Some of the Advantages of a Reverse Mortgage?

A Reverse Mortgage can help you maintain your financial independence and anadequate standard of living.
A Reverse Mortgage allows you to remain in your home and retain ownership.
The money you receive from a Reverse Mortgage is tax-free.
 

What Are Some of the Disadvantages of a Reverse Mortgage? 

Reverse Mortgage options can be confusing and numerous. Get counseling.

Reverse Mortgages are more costly to set up than other types of loans.
Although the proceeds are tax-free, a Reverse Mortgage may impact upon your eligibility for certain "need based" public benefits such as Medicaid, Supplemental Social Security Income (SSI) and MediCal benefits.

What Types of Reverse Mortgages are Available?
 

There are three types of Reverse Mortgage plans available today: FHA-insured ;lender-insured; and uninsured. Each type differs. A Reverse Mortgage counselor can help you decide which type is right for you and which lender offers the program that best meets your needs.

What Questions Should I Ask if I Decide to Shop For a Reverse Mortgage?

Use this list of shopping questions:

  • How much money do I need?
  • Is there a way to meet my needs that does not involve getting a Reverse Mortgage?
  • Will a Reverse Mortgage make my partner or me ineligible for any government benefits, currently or in the future?
  • Do I qualify for this Reverse Mortgage?
  • How much can I borrow through a particular Reverse Mortgage product?
  • How much will it cost me in fees and interest to borrow this money even if Idon’t have any "out of pocket" expenses?
  • Will I have to sell my house before I die to pay off this Reverse Mortgage?
  • What happens if I die, and my partner is still alive and living in the home; will he or she have to leave or pay the loan off?
  • What happens if I have to go to a nursing home; will the loan become due and payable?
  • What will I or my heirs have left after the loan is paid off?
  • Are there any early-repayment penalties?
  • What are my obligations under the Reverse Mortgage, such as home maintenance, property taxes and insurance?

Reverse Mortgage Essentials

Four important things you should do before getting a Reverse Mortgage:

1. Determine if you really need a Reverse Mortgage or if another type of loan would be better for you. Depending upon your needs and your financial situation, you may be able to meet your goals with another, less costly financial solution than that provided by a Reverse Mortgage.

2. See a HUD approved Reverse Mortgage counselor-free of charge – to help you decide if a Reverse Mortgage is for you, or to help you choose among the different types of Reverse Mortgages.

3. Shop around and compare! Not all Reverse Mortgages are created equal. They vary substantially in how much cash you can get, what they cost and other features.
 

4. Consider whether a Reverse Mortgage might make you ineligible for any public benefits you now receive or may be eligible to receive in the future. For example, if you currently receive or expect to be eligible for any "need based" benefits such as Medicaid, MediCal, or Supplemental Social Security Income (SSI), Reverse Mortgage payments will have to be structured so that monthly payments will be spent within the month they are received. If not ,such payments will be considered "income," and may make you ineligible for public benefits. You should contact your benefits provider to ask about how a Reverse Mortgage may affect your eligibility.
Reverse Mortgages for Seniors
 
It used to be that if you were age 62 or older, there were only two ways to get cash out of your home. You could sell it or you could borrow against your home equity. But now, with reverse mortgages, seniors can tap into the home equity they've built up without moving or taking on extra debt.

If you're just starting out and want to learn more about reverse mortgages, read our brochures and fact sheets that describe each product. Our Find a Counselor Search can help you locate a reverse mortgage counselor in your area.

If you already know a reverse mortgage is for you, Fannie Mae's publication, Money from Home: A Consumer's Guide to Reverse Mortgage Options (PDF), is a required counseling tool and an excellent source of in-depth information on reverse mortgages for homeowners ready to apply. The guide contains detailed information on the Home Keeper® mortgage and the U.S. Department of Housing and Urban Development-insured Home Equity Conversion Mortgage (HECM). The publication also has information to help you determine what type of reverse mortgage is right for you, and worksheets to help you get started.

After deciding to apply for a reverse mortgage, you should speak to a Fannie Mae lender partner and request an application form. Our list of Reverse Mortgage Lenders (PDF) can help you find lenders who offer the Home Keeper® Mortgage and the FHA Home Equity Conversion Mortgage (HECM).

Fannie Mae does not lend money directly to consumers. Instead, we work with mortgage lenders to make sure they have money to lend. Lenders who work with Fannie Mae have a broad array of mortgages to offer consumers.
 Reverse Mortgage

For many seniors “Home Sweet Home” turns into a place of despair when they don’t have enough income to continue living there. Despite paying off a 30-year mortgage, their monthly retirement income isn’t sufficient for them to survive. If this happens, do seniors have to sell their home and move into a small apartment or move in with their children? In many cases the answer is “No.” Homeowners age 62 or older who live in their homes as their principal residence should check into a reverse mortgage.

• What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets the homeowner convert the equity in their home into cash, while continuing to live in their home. The equity can be paid in three different ways. Homeowners can receive payments in a lump sum, on a monthly basis for a fixed term, or as a line of credit. The loan can be restructured during the course of the loan.

• How do I qualify for a reverse mortgage?

You must be age 62 or older. Your home must be owned free and clear or have only a small remaining balance and be your principal residence. The property must be a single-family home; a one- to four-unit dwelling with one unit occupied by the borrower; a manufactured home (mobile home); or a unit in FHA-approved condominiums or Planned Unit Developments. The property must meet minimum property standards.

• What can I use the money for?

Whatever you want. This is your money to use for home repairs, a vacation, to pay medical bills, or supplement your monthly social security check.

• Do I have to repay the reverse mortgage?

As long as you live in your home you will not have to repay a HUD reverse mortgage. Once you no longer live in your home or if you sell your home, then you or your estate will repay the cash you received from the reverse mortgage, plus interest and other finance charges to the lender.

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

When your home no longer is your primary residence, because you have sold your home or are no longer living there, then you or your estate will repay the cash you received from the reverse mortgage. You or your estate will also have to repay interest and other finance charges to the lender. Any remaining equity in your home can be passed on to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan.

• If I outlive the loan can the lender take my home away?

NO! You cannot outlive the loan agreement. You cannot be forced to sell your home to pay off the mortgage loan. HUD’s Federal Housing Administration guarantees that you will receive all the payments that are owed to you.

• Why should I get a reverse mortgage and not a bank home loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income to qualify for the loan. With a bank home loan you are required to make monthly mortgage payments. A reverse mortgage pays you and it’s available regardless of your current income. The reverse mortgage is not due as long as you live in your home. You will still be required to pay your real estate taxes and utilities, however, with an FHA-insured HUD Reverse Mortgage you cannot be foreclosed or forced to leave your home because you missed a mortgage payment.

• How much money can I get from a reverse mortgage?

The size of the loan is determined by the borrower’s age, the current interest rate, and the home’s value. The older the borrower is, the larger the percentage of the home’s value that can be borrowed. You can go to HUD’s web site and use the reverse mortgage calculator to see how much money you are eligible to receive (www.hud.gov).

• How do I find out more about a reverse mortgage?

To receive FREE information call AARP at 1-800-209-8085.

• If I think a reverse mortgage is right for me, what do I do next?

You must meet with a HUD-approved counseling agency to make sure you understand what a HUD reverse mortgage is. The counselor will make sure that a reverse mortgage is best for your situation. You can get a list of HUD-approved counselors from the HUD web site or call HUD at 1-800-569-4287.

• The last step is to meet with a HUD-approved lender.

HUD will provide you with a list of HUD-approved lenders in your area. The HUD lender will help you with the reverse mortgage application process.

You have worked hard to pay off your mortgage. Now may be the right time to let your home work for you.

Moving Forward with a Reverse Mortgage?
 

No one plans to go broke during retirement. Most seniors fill up their retirement’s gas tank and get ready to cruise. But with today’s longer life spans, seniors often need more cash to help them motor through their golden years. No one can predict the financial roadblocks that may arise, such as the need for expensive prescriptions or medical procedures. Just one major setback could drain more of those hard-earned retirement dollars than anyone expects.

Fortunately, seniors have some options to keep the financial engine running during retirement. One option is the reverse mortgage. This loan allows senior Texans to liquidate the equity in their homes for cash without selling the home or incurring a monthly loan payment. The money can be used to supplement an income, make a purchase, or cover upcoming expenses.

How does a reverse mortgage work?

The borrower typically chooses from three payment options: 1) one lump sum in cash, 2) equal monthly payments for as long as both borrowers live in the home, or 3) equal monthly payments over time. Repayment is not required until both borrowers move, sell their home, or are deceased. At that time, the lender may exercise its security interest and foreclose on the property or the owner or the heirs of the owner may pay the lien off. Naturally, heirs may object to a reverse mortgage for that reason.

Like any other loan, a reverse mortgage accrues interest charges, beginning when the first payment is made to the borrower. Usually a reverse mortgage is an Adjustable Rate Mortgage (ARM), with interest compounded monthly.

Are you eligible?

To be eligible for a reverse mortgage, a borrower must be 62 or older, own the home outright (or have a low loan balance), and have no other liens against the home. A borrower continues to be responsible for property taxes, homeowners insurance, and upkeep of the home; failure to do so can result in foreclosure.

Borrowers are also required to attend financial counseling before closing—a crucial step that helps a borrower avoid paperwork potholes and learn more about the loan. You can view a list of local credit counseling agencies here.

Using the equity a homeowner has built up over the years can help a borrower detour away from public assistance programs. Seniors who rely on public assistance need to research the impact reverse mortgage payouts may have on their benefits.

What about your heirs?

A borrower should discuss the reverse mortgage loan option with family or other heirs before closing on the loan. An heir will need to be prepared to pay off the loan balance if the heir would like to keep the home. Open communication, along with strong monthly financial planning, is necessary to keep family affairs running smoothly. One possible financial plan is for the family or heirs to obtain and maintain life insurance on the borrower, with proceeds designated for paying off the loan balance.

A reverse mortgage is not for everyone

If you are running low on cash, put on the brakes and carefully analyze cash flow before obtaining a reverse mortgage. Because of the high closing costs, a reverse mortgage is a bad idea if you plan to move in a couple years, or if you have a temporary financial emergency that might be better resolved with a home equity loan. Carefully weigh the pros and cons of all cash flow options. Folks in early retirement should remember that the younger they are, the less money they are eligible to receive because of the life expectancy factor in the loan payment formula.

Consider your alternatives

Because these loans can be complicated and expensive, a reverse mortgage is not an answer to every senior’s situation. Consider other strategies before committing to a reverse mortgage:

  • Take out a home equity loan
  • Decrease expenses by moving into a smaller home or an apartment
  • Seek property tax credit or abatement based on your senior status
Determining Your Home's Value

Determining your home's value, and setting a price, is probably the most important step in selling your home. Why? Because if your home is overpriced for your area, no matter what the cost of improvements that you have made on your house, buyers will shy away from it.

On the other hand, an underpriced home will probably move on and off the market because of a quick sale, but there goes your profit. So, to avoid losing time and money, you must properly price and present your home.

1) The easiest way to determine your home's value is to pay for an appraisal, and price your home close to the appraisal price. You can find Residential Fee Appraisers listed in the Yellow Pages under Appraisers. For about two to three hundred dollars, they will give you a by-unit (room to room, fixtures, amenities; and square footage) comparison appraisal to similar property in your area. The downside is it will cost you money, but the upside is that you have in writing a professional appraisal on your home which you can display to prospective buyers. This can be an added selling feature. But there are other methods you can use, which won't cost you anything.

2) Another way to find out the value of your home is to interview three or four real estate agents in your area. Of course, you will need to decide whether you want to use a realtor, or whether you want to go "for sale by owner." If you use a realtor, he or she can help you determine your home's value, and the best asking price to set. But you may find yourself saying, "Gee, if I sell my house myself, I can save thousands of dollars in realtor commissions." If you would like to go it alone, you can find advice on How To Sell Your House in Six Easy Steps at http://www.paradoxpro.com/prdx.hosale.html

If and when you contact a realtor, talk to an agent directly. Let him or her know up front if your intention is to sell your home yourself. You can always use the agent anyway if you also intend to buy a home, since an agent's services are free to the buyer. Usually you can get an agent to provide a bit of information about your current home, as long is there is some commission in it somewhere.

Ask the realtor for a CMA (Comparative Market Analysis) on your house. You will need to supply the agent with information pertaining to your house and the area. List the number of baths and bedrooms, and the total number of rooms. Do not count the basement, garage or bath areas as rooms.

Next make a list of up to 10 roads within a half mile to mile radius. Include your address, zip code and school district. This furnishes the agent with all the criteria necessary to run a market analysis. A CMA consists of the selling prices of the homes in the surrounding area that have similar traits to your house. The comparable should cover a six-month to one-year period.

Some web sites offer to provide a CMA. Many of them are based on tax rolls, and often charge for the service. At one time, there were several sites that allowed you to access the information anonymously, but a recent check of over 100 sites in a leading search engine showed that today's sites require you to provide either money, personal information, or both.

3) A third method of figuring your house's value is to determine what your city or county has set the value at, based on your property taxes. Let's say the property taxes on your house are $2000 a year and your tax base is 1 percent (this is a percentage in which local municipalities multiply their estimate of the worth of your home to arrive at a yearly tax figure). The city or county in which you live uses many methods to determine what they feel is the worth of your home. To determine this estimated value, you need to multiply your base by the yearly tax amount. Usually the value, your tax base, and the yearly property tax amount are located on the same issued tax statement or bill. $2000.00 x .01 = $200, 000.00 YOUR TAX BASE OF ONE PERCENT (.01) MULTIPLIED BY YOUR YEARLY TAX OF TWO THOUSAND DOLLARS ($2000.00) = ESTIMATED VALUE OF YOUR HOUSE, OR $200, 000.00.

The problem with this method is that there have been great fluctuations in tax valuations in the past 20 years, and your property taxes may or may not be a good way to estimate your home's value. Often it is best to try each of the three methods, as a way to check each of the other methods for accuracy.

Even the realtor's conditional CMA may not be on the money. This is where a comparison between the information given to you by the real estate agent and the calculated value of your home may help.

Let's say the agent tells you $310,000 is the average selling price in your area for a house with similar square footage and features. Another important factor is how long the houses stayed on the market before selling. A complete CMA will include a brief description of each comparable home and the days on the market before it sold.

Use the comparables to price your home, but if the market is fair in your area (90 to 120 days on the market) deduct 2%, and for a poor market (120 days or more), subtract 3%. Market movement is important. Likewise, if the houses move really fast, you may be able to set your price slightly higher. You want a starting price high enough to make the profit you want, but not so high as to scare off buyers.

Be aware that none of the suggested ways of determining your property's worth referred to in this text will guarantee the house will sell for your calculated price. The marketplace is always the final word in regard to actual profit you can expect and the speed at which your home will sell.

Determine your home's value

You need to know what your home is worth to set the listing price.

Setting a listing price is one of the most important parts of the home selling process. Knowing your home’s value helps you determine its price.

What determines home value
Many factors go into determining home value. The square footage and number of bedrooms and bathrooms plays a large part. Typically, larger homes with more bedrooms and bathrooms increase the home value. There are several other features that help determine home value. Does your home have a magnificent view? Is it on a private lot or cul de sac, or close to public transportation? All of these can add to its value. School districts can greatly affect value, and the age and condition of the home are also factors.

Another factor in home value is the current number of comparable listings on the market. The fewer the listings, the more valuable your home, particularly if it’s in a desirable location or has amenities hard to find in your area. Supply and demand can make your home worth more, allowing you to set a higher price when you sell. Conversely, if there are many homes similar to yours on the market, that can lower the value, especially if there aren’t many buyers.

How to find your home value and set your price
There are many tools available to help you determine your home value. The most obvious is your real estate agent. Your agent should have a good understanding of the current market in your area, allowing them to review comparable homes and estimate how your home sizes up. If you want to get an idea of your home’s value before talking with an agent, you can use the Home Price CheckSM tool from RealEstate.com to get a value for your home, based on prices for comparable homes in your area. It might be a good idea to use this for comparison with the price that your agent recommends.

When comparing your home to similar ones, make sure you look at more than square footage and the number of rooms. Take into account features such as molding, the condition of the home, the slope of the lot, etc. when looking at comps.

One final factor in determining your price is your time. If you are not in a hurry to sell, you can price your house higher because you have the luxury to wait for the right buyer. Just make sure you don’t price it too high – you don’t want to scare away prospective buyers. However, if you are in a time crunch, it may be better to price your home on the low end in order to sell quickly. Selling quickly may be more valuable than whatever additional money you would get from a starting at a higher price

As Population Ages, Reverse Mortgages May Finally Catch On

 

Reverse mortgages have been around for a long time without really catching on. Banks considered them more of an insurance product than a mortgage product and they could be a hassle to service; consumers either did not understand them or were afraid of them, and the principal marketing target was a small sector of the American population and one that had historically considered debt to be a very bad thing. Senior advocacy groups were pretty much the only ones out there educating consumers and pushing banks to provide reverse mortgages and, even though their popularity is growing slowly, only around 40,000 were written in 2004.

But the Depression era generation with its communal memories of mortgage foreclosures is disappearing while the first of the Baby Boomers, who certainly understand and accept debt, are rapidly approaching their mass 60th birthday. And the banks? They always know an opportunity when they see one.

So the reverse mortgage is slowly increasing in availability and getting a lot of notice in the press. This is probably a good thing. Understood fully and used properly the product can be a positive addition to a retirement planning arsenal and/or a Godsend to cash-strapped seniors.

As the name implies, a reverse mortgage is the mirror image of a regular mortgage. Instead of a borrower paying off a mortgage in order to own his house, the house subsidizes a mortgage which pays the homeowner.

Reverse home mortgages are predicated on the premise that many seniors have a lot of equity in the homes they have occupied for years. Paying off the mortgage was a major 20-year goal for folks who bought homes in the 1950s and 1960s and many have lived in debt free houses for decades. Even in the 1970s refinancing was not a major financial game the way it is today so mortgages once paid stayed that way. Home values, as we hear on the news every single night, have escalated dramatically. Seems like the premise mentioned above may be a little modest; many seniors indeed have a very high net worth.

On paper.

And there is the problem.

Some senior are what an older generation called “house poor,” with so much money tied up in bricks and mortar that they cannot afford much else. The tragic stories are out there; the necessity to decide between food and heat; foregoing needed medication. Yet, for many seniors the homes they have occupied for years may be the least expensive place they can live, especially if it is mortgage free. But the cruel reality is that the cheapest roof in the world is useless if you can’t afford to keep it over your head.

As values have risen, so have property taxes, hazard and maybe flood insurance premiums. Still, an apartment, condo, or assisted living situation may be much more expensive than staying put and could quickly drain any cash that is cleared from the sale of the old homestead. In addition, many of our elderly are confronting increasing medical costs – even the cost of Medicare goes up every year, and large numbers, particularly women, have little in the way of retirement savings. Many live on Social Security, and for a single person that can be a very paltry sum indeed, and/or small pensions which are ever more endangered as large corporations bail out of their obligations.

Even homeowners who have been able to save comfortable amounts toward retirement may find reverse mortgages of interest. They can assist with unexpected expenses, provide a few luxuries, or even be a vehicle to enable additional investments – all while letting the homeowner continue to retire in place.

And one cannot overlook the emotional benefits of being able to stay in a home one loves; remaining independent, and feeling safe and secure. These can even translate into social service and health care savings that might otherwise be passed on to the public.

The FHA/HUD sponsored loan carries pretty simple requirements; the borrower must be at least 62 year of age, the home must be mortgage free (or small enough to be refinanced under the constraints of the reverse mortgage,) and there are some reverse mortgage fees involved, although by all accounts these are not excessive and can usually be rolled into the mortgage. There is no income requirement nor is credit (other than an unresolved bankruptcy) taken into consideration.

In return for a mortgage on the property, the homeowner receives a loan that is tied to the appraised value of the home and capped by the maximum FHA loan amount for the particular geographic area. The total amount that can be borrowed is also affected by the age of the borrower, the older he is the more he can borrow.

Other lenders are now developing products with higher lending limits and other bells and whistles but the FHA guarantee will probably continue to make that product more affordable than private market products.

The borrower can receive funds in a lump sum, fixed to a line of credit to be drawn down as needed, or paid out in monthly payments (like an annuity). In each case interest accrues only on the amount that has actually been collected by the borrower. Aside from required up-front fees, a borrower might view taking a reverse mortgage as a good rainy-day strategy.

But why shouldn’t a senior just use a regular refinance or a home equity loan to draw equity out of the house? In the latter case there are often no fees and banks are generally offering generous rates and terms.

The problem is that banks want to be repaid in a timely manner and many seniors do not have the income to qualify for mortgages or equity lines. Reverse mortgages are ideal for seniors because they require no payment until the house is sold. Further, if home prices should decline to a point where a sale does not provide enough to cover the outstanding balance of principal and accrued interest, FHA reimburses the lender for the difference. This is covered by an insurance fee which FHA charges the borrower. The homeowner or his heirs retain the right to any amount from the sale above the debt.

There are drawbacks to be sure. Disadvantages of reverse mortgages include:

The homeowner might be spending his children’s inheritance. Hopefully most children will be supportive of this if it means a better standard of living for the parent.

The vagaries of age might make such cash availability dangerous. Families should be prepared to monitor draw downs and/or expenditures if this is a risk.

If a reverse mortgage looks like a good idea for you or an aging relative you may still have to do a little research. If a local bank or mortgage company is no help try the FHA Web site, a senior advocacy group such as AARP or a local senior center for information on reverse mortgages. And be sure and consult with an attorney or financial advisor on the terms and personal ramifications of such a loan.

Advantages and Disadvantages Of A Reverse Mortgage  Betty and John, are in their mid-seventies and are currently weighing the advantages and disadvantages of a reverse mortgage as a way of freeing up some cash. The couple purchased their home 45 years ago for about $14,000 since then home values have skyrocketed and recent single family homes in their neighborhood have been selling for a minimum of $160,000.

Like Betty and John, if you’re considering a reverse mortgage it’s important to do some research prior to making a decision. You not only need to understand the basic principles of this kind of mortgage but you also need to look at all the advantages and disadvantages of a reverse mortgage.

Essentially a reverse mortgage is a loan that permits homeowners 62 years of age and older to borrow against the equity in their homes without having to sell it. Further, you don’t have to give up the title or take on a new monthly mortgage payment.

A reverse mortgage loan is tax-free and needs only to be repaid when the borrower (or in the case of Betty and John, when the surviving spouse) dies or sells the home. At which time, the reverse mortgage loan must be repaid in full, including all interest and other charges.

When examining the advantages and disadvantages of a reverse mortgage it’s also important to consider both the process and the related costs of obtaining a reverse mortgage. Unlike a conventional mortgage, with a reverse mortgage, the homeowner (the potential borrower) must meet with a reverse mortgage counselor. References for counselors can be obtained from banks offering reverse mortgages or the U.S. Department of Housing and Urban Development (HUD).

The purpose of these meetings which may take place in person or on the telephone is for the homeowner to learn about reverse mortgages and discuss alternative options. It also helps you decide which kind of reverse mortgage may be best. As well as exploring the advantages and disadvantages of a reverse mortgage, it’s wise that the potential borrower, also compare costs between various lenders and request a Total Annual Loan Cost estimate for each.

Further to discussing the advantages and disadvantages of a reverse mortgage with a counselor, you also need to understand that there are certain costs involved in the reverse mortgage process. Costs may include application fees, closing costs, insurance, appraisal fees, credit report fees, and quite possibly a monthly service fee. Remember too that since a reverse mortgage allows you to continue living in your home, you’re still responsible for property taxes, insurance and repairs. If these payments are not maintained, the loan could become due in full.

A reverse mortgage may also affect eligibility for federal or state assistance as well as Medicaid. That said, any reverse mortgage money that is received is tax-free and does not affect Social Security or Medicare benefits.

The condition of your home is also a large part of the approval process. It must be structurally sound and in good repair. If it’s determined that home repairs need to be done, the costs can also be financed through the reverse mortgage loan.

The total amount a homeowner can borrow all depends on the kind of reverse mortgage selected, how much equity is in the home, the loans interest rate and most importantly, the age of the borrower. Typically the older a person is, the more they can expect to receive.

A borrower can receive reverse mortgage payments in one of the following ways: in a lump-sum payment; fixed monthly payments; a line of credit or a combination of any of the above. Most homeowners go for the line of credit option which allows them to draw on the loan whenever money is required.
 How Reverse Mortgages Help Older Adults Get Needed Cash

As the population ages, this mortgage option is becoming more popular

What is a Reverse Mortgage?
In a reverse mortgage, also known as a conversion mortgage, the home is used a collateral to get cash. This is similar to a standard mortgage, but with a reverse mortgage the homeowner doesn't need an income to qualify and there are no monthly loan payments.

With a reverse mortgage, the loan and the interest on the loan are paid off when the property is sold.

How Do Reverse Mortgages Work?
Once the property is sold—and this can be during the homeowner’s lifetime or after his or her death—the sale price of the property pays back the loan. This rule is in place even if the sale price is less than the combination of the loan and interest.

Lenders must accept only the sale price and cannot—by law—go after the homeowner’s other assets.

What are the Advantages of a Reverse Mortgage?
 

  • Homeowners can pull needed cash from the equity of the home, without incurring monthly expenses.
  • Lenders cannot force homeowners to sell the property to pay back the loan.
  • Reverse mortgages guarantee that the homeowner can stay on the property for as long as he or she lives, even if the outstanding loan and interest grow to exceed the value property’s value.

What are the Disadvantages of a Reverse Mortgage?
 

  • Reverse mortgage fees can be high, although the fees are often rolled into the loan and not paid upfront. A reverse mortgage can cost thousands more than a conventional mortgage. One lower cost option is the FHA reverse mortgage program from the U.S. Department of Housing & Urban Development (HUD).
  • It’s important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the mortgage company essentially owns your home.

     

  • Get sound advice. Discuss your reverse mortgage plans with legal and financial advisors, and family members, before making a decision. Because home ownership is often a person's most valuable asset, getting a reverse mortgage is essentially the same as spending the money you'd expect to leave to your heirs.
  • Be sure that the older homeowner is thinking clearly when making this decsion (no dementia or symptoms of Alzheimer's), because having a sudden influx of cash can be a heady experience and it would be a shame to waste it or become the victim of a scam.
  • Reverse mortgages are often seen as a last resort if the homeowner needs cash and there are no other options.

What are the Rules of Reverse Mortgages?

  • To reduce their risk, lenders generally limit reverse mortgage loans to amounts that are below their estimate of the property’s full value.
  • Age is an advantage when applying for a reverse mortgage. Borrowers must be at least age 62, and the older the homeowner is, the more money he or she would qualify for. For example, a 78-year-old borrower would qualify for a larger loan than a 62-year-old.

What are the Limits on Reverse Mortgages?
 

  • Limits can vary across the country. The most popular option, the Home Equity Conversion Mortgage, which accounts for nine of every 10 reverse mortgages in the U.S., limits loans to $312,896.
  • The Fannie Mae Home Keeper loan, number two in popularity, limits loan amounts to $359,650.

If you are considering a reverse mortgage, it’s important to get as much information as you can, and to consider all of your options. For many older homeowners, selling your home and moving to a less expensive home is the best way to protect your assets for yourself and your family. If you want to explore reverse mortgages, there’s a wealth of information from AARP on different options and how to qualify.
 
 
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