How Much Money Can I Get?
The amount of funds you are eligible to receive
depends on your age (or the age of the youngest spouse in the case
of couples), the appraised home value, interest rates, and in the
case of the government program, the lending limit in your area. In
general, the older you are and the more valuable your home (and the
less you owe on your home), the more money you can get.
Does My Home Qualify?
Eligible property types include single-family
homes, 2-4 unit properties, manufactured homes (built after June
1976), condominiums, and townhouses. In general, cooperative housing
is ineligible. However, some lenders have developed private programs
that lend on co-ops in New York.
What are My Payment Plan Options?
You can choose to receive the money from a
reverse mortgage all at once as a lump sum, fixed monthly payments
either for a set term or for as long as you live in the home, as a
line of credit, or a combination of these. The most popular option –
chosen by more than 60 percent of borrowers – is the line of credit,
which allows you to draw on the loan proceeds at any time.
My Understanding is that the Unused Balance in
the Line of Credit Option Has a Growth Feature. Does that Mean I'm
No, you're not earning interest like you do with
a savings account. The growth factor, which is equal to roughly the
interest that you're being charged, takes into consideration that
your home has appreciated in value over the past 12 months and that
you are one year older.
How Can I Use the Proceeds from a Reverse
The proceeds from a reverse mortgage can be used
for anything, whether it’s to supplement retirement income to cover
daily living expenses, repair or modify your home (i.e., widening
halls or installing a ramp), pay for health care, pay off existing
debts, buy a new car or take a "dream" vacation, cover property
taxes, and prevent foreclosure.
How Does the Interest Work on a Reverse
With a reverse mortgage, you are charged
interest only on the proceeds that you receive. Most reverse
mortgages charge a variable interest rate (although fixed rate
products are entering the marketplace) that is tied to an index,
such as the 1-Yr. Treasury Bill or the London Interbank Offered Rate
(LIBOR), plus a margin that typically adds an additional one to
three percentage points onto the rate you're charged. Interest is
not paid out of your available loan proceeds, but instead compounds
over the life of the loan until repayment occurs.
Are There Any Special Requirements to Get a
As long as you own a home, are at least 62, and
have enough equity in your home, you can get a reverse mortgage.
There is no special income or medical requirements.
What If I Have An Existing Mortgage?
You may qualify for a reverse mortgage even if
you still owe money on an existing mortgage. However, the reverse
mortgage must be in a first lien position, so any existing
indebtedness must be paid off. You can pay off the existing mortgage
with a reverse mortgage, money from your savings, or assistance from
a family member or friend.
For example, let's say you owe $100,000 on an
existing mortgage. Based on your age, home value, and interest
rates, you qualify for $125,000 under the reverse mortgage program.
Under this scenario, you will be able to pay off the entire existing
mortgage and still have $25,000 left over to use as you wish. If,
however, you only qualify for $85,000, then you would need to come
up with $15,000 from your own savings to get the reverse mortgage.
Even then, all the money from the reverse mortgage will have been
used to pay off the existing mortgage. On the other hand, you won't
have a monthly mortgage payment anymore. If you find yourself in a
deficit situation where you don't have enough money to pay off the
existing mortgage, you may use funds from a grant or gift from a
family member or friend to cover the gap, but you cannot incur a new
debt obligation (i.e., loan).
What Is the Service Fee Set-Aside?
Under the FHA HECM program, you are charged a
monthly servicing fee that ranges from $30-$35 to manage your
account once the loan closes. The SFSA is an estimate of what the
total servicing fees will be over the life of the loan, by
multiplying your life expectancy (converted from years into months)
multiplied by either $30 or $35.
Although it's not considered a closing cost, the
SFSA can equal several thousand dollars, which is deducted from your
available loan proceeds. You do not have access to that money, nor
do you earn interest.
Will I Lose My Government Assistance If
I Get a Reverse Mortgage?
A reverse mortgage does not affect regular
Social Security or Medicare benefits. However, if you are on
Medicaid, any reverse mortgage proceeds that you receive must be
used immediately. Funds that you retain would count as an asset and
could impact Medicaid eligibility. For example, if you receive
$4,000 in a lump sum for home repairs and spend it all the same
calendar month, everything is fine. Any residual funds remaining in
your bank account the following month would count as an asset. If
the total liquid resources (including other bank funds and savings
bonds) exceed $2,000 for an individual or $3,000 for a couple, you
would be ineligible for Medicaid. To be safe, you should contact the
local Area Agency on Aging or a Medicaid expert.
Why Do I Need to Get Counseling?
Counseling is one of the most important consumer
protections built into the program. It requires an independent
third-party to make sure you understand the program, and review
alternative options, before you apply for a reverse mortgage.
You can seek counseling from a local
HUD-approved counseling agency, or a national counseling agency,
such as AARP (800-209-8085), National Foundation for Credit
Counseling (866-698-6322), and Money Management International
(877-908-2227). Counseling is required for all reverse mortgages and
may be conducted face-to-face or by telephone. By law, a counselor
must review (i) options, other than a reverse mortgage, that are
available to the prospective borrower, including housing, social
services, health and financial alternatives; (ii) other home equity
conversion options that are or may become available to the
prospective borrower, such as property tax deferral programs; (iii)
the financial implications of entering into a reverse mortgage; and,
(iv) the tax consequences affecting the prospective borrower’s
eligibility under state or federal programs and the impact on the
estate or his or her heirs.
When Do I Pay Back My Loan?
No monthly payments are due on a reverse
mortgage while it is outstanding. The loan is repaid when you cease
to occupy your home as a principal residence, whether you (the last
remaining spouse, in cases of couples) pass away, sell the home, or
permanently move out. The amount owed can never exceed the value of
your home. Furthermore, if the home is sold and the sales proceeds
exceed the amount owed on the reverse mortgage, the excess money
goes to you or your estate.
Under What Circumstances Should I Not
Consider a Reverse Mortgage?
Because of the upfront costs associated with a
reverse mortgage, if you intend to leave your home within 2-3 years,
there may be other less expensive options to consider, such as home
equity loans, no-interest loans or grants that may be offered by
your county government or a local non-profit to repair your home, or
a tax deferral program, if you're having problems paying your
property taxes. Also, if you want to leave your home to your
children, then you should consider other options, because in many
cases, the home is sold to pay back a reverse mortgage.
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