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All About
Reverse Mortgages |
A reverse mortgage allows you
to convert the equity in your home into a lump-sum payment,
monthly income, or a line of credit.
Why would you want to do that? Well, it can be a useful strategy
in retirement (you must be at least 62 years of age to qualify
for such a mortgage) if you want some extra income. It's called
"reverse" because it reverses the direction of the
payments: instead of building up equity in your house by putting
the money in, you actually reduce equity in the house by taking
money out.
No payments are made on the loan until you no longer occupy
the home as your primary residence. When you move or sell
your home, the loan balance is due and payable. However, the
loan balance is never allowed to exceed the value of your
home.
What are the eligibility
requirements for a reverse mortgage?
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You
and all co-borrowers must be a minimum of 62 years
old. |
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The home should
have a very low mortgage balance or be owned free
and clear. |
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The home must
be owner-occupied. FHA-approved condominiums and two-
to four-unit dwellings (owner occupied) are also eligible. |
How is my equity determined?
The allowable equity is calculated based on three factors:
The youngest borrower's age
The appraised value of your home
The FHA maximum loan limit for your county
What fees are involved?
Like most loans, you will pay an origination fee, appraisal
fee, title fee, escrow fee, recording fee, and a monthly servicing
fee. These fees can be included in your loan balance, if there
is enough equity available.
What happens when the
loan balance exceeds the value of my home?
You must occupy the property, and are responsible for maintenance
and payment of taxes and insurance. As long as you abide by
the loan agreement, you cannot be forced to sell or vacate
your home. No deficiency judgment may result from your reverse
mortgage. FHA insurance guarantees against any loss to the
lender.
What if my home is in
need of repairs?
With the reverse mortgage, repairs can be paid for out of
the available equity. Some of the repairs can even be done
after your loan has closed and funded.
How will this affect
my heirs?
Upon your death, the loan balance becomes due and payable.
Your heirs may repay the loan by selling your home, or refinance
the reverse mortgage and keep the home. If your home has appreciated
in value, you are required to pay back only the outstanding
balance. Any money that remains after the mortgage is paid
would go to your heirs.
Will this affect my Social
Security income?
Reverse mortgage loan funds do not affect your Social Security
or Medicare benefits. However, Social Security income benefits
are limited, and you must structure your cash payments to
follow those guidelines. Additionally, Medicaid, Aid to Families
with Dependent Children (AFDC), and food stamps all have different
eligibility requirements. We recommend that you contact your
local agency on aging, or these agencies' respective offices,
for their particular guidelines. |
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