Frequently Asked Questions
What is a Reverse Mortgage?
Like a traditional mortgage, a reverse mortgage loan allows you to borrow money using your home as security. Unlike a traditional mortgage, you don’t make monthly mortgage payments. Instead, the loan is repaid when you no longer live in your home. Interest and fees are added to the loan balance each month and the balance grows.
How much equity do I have to have to qualify for a Reverse Mortgage?
To qualify for a reverse mortgage, you will have to have a significant amount of equity built-up in the home. There is no specific amount of equity needed and you can get a reverse mortgage even if you have an existing mortgage. The proceeds from the reverse will pay it off and the balance is incorporate into the amount borrowed. As a rule of thumb, you should have 50% equity or more in your home for a reverse mortgage. This is because you must use the reverse mortgage proceeds to pay off your existing home loan first. If you own less than 50%, the proceeds of your reverse mortgage won’t cover that gap.
What are Reverse Mortgage maintenance requirements?
There are several requirements to maintain a reverse mortgage agreement. Aside from maintaining the home in a state of good repair, there are two additional stipulations:
- The home must be your principal residence
- You must stay up-to-date on all property charges such as property tax and homeowners insurance
What are the costs associated with a Reverse Mortgage?
Up-front costs may include a property appraisal fee, origination fee, closing costs, mortgage insurance premium, a modest charge for HECM counseling (if applicable), and a servicing fee. You can roll most of the up-front costs into the loan to minimize out-of-pocket expenses. While closing costs vary based upon the type and size of the loan, they’re similar to those for any traditional mortgage. During the life of the loan, interest and a monthly insurance premium accrue. An FAR Reverse Mortgage Specialist will give you a detailed breakdown of the up-front costs and loan expenses.
When do I have to pay back the Reverse Mortgage loan?
You do not have to make principal and interest payments as long as the home remains your primary residence. As long as you meet the loan terms, you do not have to repay a reverse mortgage until the home is sold or the last surviving borrower (or a non-borrowing spouse who meets certain requirements) no longer lives in the home as their primary residence.
Will a Reverse Mortgage affect my social security or Medicare?
Reverse mortgages typically don’t impact regular Social Security or Medicare benefits. But because programs vary from state to state, be sure to consult a benefits professional before entering into a reverse mortgage.
Will the bank own my home with a Reverse Mortgage?
No. Just like a traditional mortgage, as long as you continue to meet the loan terms, such as staying current on property taxes, homeowners insurance, and property charges, you retain full ownership. You can sell the home at any time.
How do I receive the proceeds?
You can take your funds as a lump sum, a line of credit, or as monthly payments. You can also use a combination of these options.
Am I spending my children’s inheritance?
A reverse mortgage may help you maintain a quality standard of living throughout your retirement years. Because a reverse mortgage is a tough decision that may affect other family members, we encourage you to involve them in your decision process.
When the home is sold or is no longer your primary residence, it’s time to repay the loan. After the loan is paid off, any remaining equity belongs to you or your estate and can be transferred to heirs.
