What is a Reverse Mortgage and how does it work?
A Reverse Mortgage is a home loan (used for any purpose) where seniors, 62 and older (and in some cases as young as 60 years old), can access the equity (cash) built up in their home. It can also be utilized to purchase a home should you desire to be free of having to make a monthly mortgage payment.
It is called a Reverse Mortgage because although you borrow money from a lender, all principal and interest payments are paid at the end of the loan, rather than in the beginning. The lender may make monthly payments to you, rather than you making monthly payments to the lender, or they may provide you with a lump sum, either in cash or accessed when you want through a credit line. Funds can be used to pay off existing debt or as you see fit.
Some of the Benefits of a Reverse Mortgage:
Strengthen your personal and financial independence.
Help pay for health care or other family needs, retire early, defer social security to maximize payments, purchase a home without monthly payments, or simply travel the world, etc.!
Use a reverse mortgage as part of your overall financial plan, drawing funds as needed VS potentially selling assets in down markets.
You retain title to your home and you can never lose your home in foreclosure as long as you maintain the property and pay your tax and insurance payments.
The loan is only retired when the last surviving borrower passes, when the house is sold by you or your heirs, all borrowers move out of the house (a 12 month absence is acceptable for health reasons), or through a refinance.
You retain your Medicare and Social Security benefits.
Obtain your funds via a growing credit line, a lump sum distribution, a monthly payment guaranteed for life, a monthly payment that you determine for a specific term or a combination of all these options.
All funds are tax free.
Loan amounts are based on the age of the youngest borrower (or non-borrowing spouse if applicable), the value of your home and the prevailing interest rate.
Reverse Mortgage Specialists Since 1986
When considering the option of a reverse mortgage, it is often a decision that is shared and discussed within the family. Reverse mortgages are able to give family members the ability to retain financial independence, by accessing the wealth they have in their homes, while allowing them to live comfortably in their own homes on their own terms.
View our Reverse Mortgage Brochure for more information.
Reverse Mortgage FAQs:
How does a reverse mortgage differ from a home equity loan?
Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash. They differ in that with a home equity loan you must make regular monthly payments of interest and/or principal. However, with a reverse mortgage you do not make any monthly mortgage payments for as long as you stay in the home.
Does my current income influence my ability to obtain a reverse mortgage?
Yes, currently you must pass “Financial Assessment” to confirm that you can afford to pay basic property related costs such as taxes and insurance. The requirements to pass are typically less than those required for traditional mortgages. If you do not pass, the lender may require a LESA (Life Expectancy Set Aside) to ensure enough funds have been “set aside” from the loan proceeds to pay for these items.
What are the advantages of a reverse mortgage?
Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership. No monthly mortgage payments. You are not required to pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
Freedom and flexibility. The money you acquire from a reverse mortgage is yours to use in any way you choose.
* Consult your tax advisor
I've heard that with a reverse mortgage the lender would eventually own my home. Is this true?
It is absolutely false. The borrower(s) retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.
Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses - just as they would with a standard first mortgage or home equity loan.
Can I refinance a reverse mortgage as I would be able to do with a traditional home mortgage?
Yes. Refinancing can make sense if your home increases in value or interest rates drop.
Is it possible for my loan balance to become greater than the value of my home?
No. You can never owe more than what your home is worth. What's more, since the reverse mortgage is what is known as a "non-recourse" loan, the lender cannot seek repayment from your income, your other assets or your estate. In other words, the debt is secured by the property only.
Can a reverse mortgage lender take my home away if I outlive the loan?
No they cannot. And the loan is not due at that time either. In fact, you don't need to repay the loan as long as you or another borrower continues to live in the house, keep the taxes paid and insurance in force.
What is the maximum amount of cash that I can obtain?
The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, and the appraised value of your home. If you obtain an FHA reverse mortgage the current FHA lending limits for your area will also be taken into consideration. The older you are, the more valuable your home is, and the less you owe on it, the more money you will be able to obtain.
How can I use the money I get from a reverse mortgage and are there restrictions?
You can use the money for anything you choose, from daily living expenses, home improvement costs, healthcare expenses, paying off existing debts, delaying receipt of social security income, helping out loved ones or simply enhancing your retirement years - there are no restrictions. For many people, the money provides a "financial security blanket," in case unexpected expenses arise. One product allows for a credit line that grows each year so funds are there for you to access at any time needed even if many years down the road, and interest only accrues on the balance drawn. Some use the product as part of their overall financial plan, drawing funds as needed VS selling assets in down markets which can significantly harm their growth rate over time.
What are my choices in how I receive the money from a reverse mortgage?
With most reverse mortgages you have a wide range of payment options, one of which should be ideal to meet your financial needs:
- You can choose to receive the money all at once, as a lump sum.
- You can receive equal monthly payments as long as one of the borrowers continues to occupy the property as a principal residence.
- You can choose to receive equal monthly payments for a fixed period of months.
- You can obtain a line of credit; which allows you to access funds at times and in amounts of your choosing until the line of credit is exhausted. This is a popular option if you do need funds immediately.
- You can opt for a combination of a line of credit while also receiving regular monthly payments for as long as the borrower remains in the home.
- Or, finally, you can choose a combination of the above.