FREQUENTLY ASKED QUESTIONS
When is the loan repayable?
The loan is only repayable if last borrower (or eligible non borrowing spouse) do not live in the home for greater than 6 months, do not pay your property charges (taxes, insurance, HOA), or do not keep the home in good repair. It just like any other standard mortgage and heirs have 6 months to sell the home or refinance the debt into their name to keep the home. The proceeds from the sale are used to pay back the loan and the heirs will receive any remaining equity. If your heirs decide to keep the home, they can pay back the loan in other ways such as by refinancing into a conventional loan or even a reverse mortgage should they qualify. The HECM is a "non recourse loan" which means you nor your family is responsible for any underwriter debt and heirs have the opportunity to buy the home back at 95% of fair market value should the mortgage balance accrue to greater than what the home is worth at that time.
What happens to unused funds if I pass before using it?
Unused funds, like money setup on a line of credit or for future monthly payments, is not "borrowed funds" and considered equity which the heirs can recover.
What can I use the funds for?
You can use the funds for pretty much anything. You will sign disclosures stating you do not intend to use the funds to buy other financial investments. After all, that is what this program was designed to be with the growth rate on the line of credit for any funds that are not being used.
How do I receive my funds?
Reverse mortgage loan funds can be disbursed in a full or partial lump sum, as a line of credit, through monthly payments, or as a combination of any of these. You can tie checking account information through the mortgage servicer for direct deposit of monthly payments and draws from the line of credit. You can request line of credit draws directly from the loan servicer for anytime and for any amount (assuming you have sufficient funds on the line of credit to draw).
Will a reverse mortgage affect my social security, medicare, or pension?
No, Social Security, Medicare or pension benefits will not be impacted. Funds from a reverse mortgage are considered loan proceeds and not income. In fact, a reverse mortgage could increase your Social Security benefits. A reverse mortgage can help delay the time you need to begin accessing Social Security, therefore increasing the amount of benefits you are eligible to receive each month. However, in some cases need-based benefits could be affected, such as Medicaid or SSI, since the proceeds from a reverse mortgage improve your monthly cash flow.
What is a reverse mortgage?
A reverse mortgage allows you to access a certain potion of a home's equity without having a mortgage payment. Instead, interest accrues on the money you borrower causing the loan amount to increases over time.
What are common reasons people get a reverse mortgage?
Many people take advantage of reverse mortgages to eliminate their existing mortgage and payments as well as help continue to afford the cost of rising property charges such as property taxes and homeowners insurance.
Another common reason people take advantage of reverse mortgages is for the growth rate on proceeds setup on a line of credit which grows at 1.5% greater than the interest. It's a great solution for people who have little or no mortgage to create a secure and growing nest egg which is insured by the federal government. For example, say you were able to access $200,000 in equity based on your age the home's value, you owed $50,000 on your existing mortgage, and the interest rate for the reverse mortgage was quoted at 4.5%. You would eliminate your mortgage, the loan amount would be $50,000 to payoff the existing mortgage accruing interest at 4.5%, BUT you have $150,000 remaining which you could put all on a line of credit growing at 6%! This is why a reverse mortgage is great opportunity for folks who own their home free and clear.
Using a reverse mortgage to purchase a home is also becoming more common. It works the same way as if you owned the home, you are able to access a certain portion of the home's value based on your age, home's value, and interest rate. On a purchase you just are responsible for the difference. For example, say you have $200,000 to buy a home (usually from the sale of an existing home) and you found a home you wanted to buy for $400,000. Based on the quote that your friendly local Desert Equity Lending mortgage adviser gives you it shows you are able to access $200,000 through the reverse mortgage. That means you can put $200,000 from the proceeds of the sale of the previous home and $200,000 through the reverse mortgage allowing you to buy that $400,000 with no mortgage payment. Say you were downsizing and found a new home for $200,000 instead of $400,000, still have $200,000 in proceeds form the sale of the previous home, and still able to access about 50% of the home's value based on your age and interest rate. This would allow you to use $100,000 from the reverse mortgage, only $100,000 of your own money, keeping $100,000 in your pocket still with no mortgage payment!
How does a reverse mortgage work?
The money you are able to access which is based on your age, the home's value, and interest rate is negatively amortized over your life expectancy (based on census data). Once the borrower or surviving non borrowing spouse pass or no longer live in the home as their primary residence the loan is repayed through the equity in the home.
What are the downsides of a reverse mortgage?
Negative amortization causes the loan amount (the money you access) to increase over time which doesn't make it an ideal solution if you are trying to protect equity for heirs.
Are reverse mortgages a good deal?
It's important to explore all of our financing options to help meet your specific financial goals (regardless of whether or not you are planning for retirement). There is no question thousands of American's have taken advantage of reverse mortgages because it is the best deal for them and their families.
Do I keep title to my home?
Yes, just like any other standard mortgage, the tile to the home stays in your name.
Is there any risk of losing my home with a reverse mortgage?
If you are not required to include your property taxes and homeowners insurance in your mortgage and fail to pay them on your own (or association dues) the lender may initiate foreclosure proceedings. You are able to voluntarily setup an escrow account on a reverse mortgage to ensure they are payed on time if it is not required by the lender.
How much money do you get from a reverse mortgage?
The amount of money you can access through a reverse mortgage is based on three things: the age of the youngest borrower (or non-borrowing spouse, see below), the home's value, and the interest rate.
What is a non-borrowing spouse?
One home owner must be at least 62 years of age to qualify for a reverse mortgage. A spouse under the age of 62 is considered a non borrowing spouse. Proceeds from a reverse mortgage are based on the youngest borrowers age or non-borrowing spouse if applicable. A recent change in guidelines provides eligible non borrowing spouses the protection of living in the home mortgage free for the rest of their lives (or as long the home remains their primary residence) but do not have access to any unused proceeds set aside on a line of credit or for future monthly payments by the borrower. Once an eligible non borrowing spouse turns 62 they can be refinanced onto the loan as a borrower for access to all proceeds. A spouse not living in the home as their primary residence would not be considered in the loan in determining the proceeds and would not have any protections to stay in the home.
What happens if my home's value increases?
You can refinance an existing reverse mortgage to access more equity if the home becomes worth more. Plus, the older you are the more you can borrower.
Is a reverse mortgage just a last resort?
Absolutely not! It's a great financial tool that has allowed thousands of homeowners stay in their homes, especially on a fixed income which is common for retirees, to help eliminate their mortgage payment and help offset the rising cost of property charges but it's a great solution for anyone just looking to minimize their monthly financial obligations or access money for whatever you want. It has evolved into much more financial tool with the aspects such as the growth rate for proceeds setup on a line of credit and being able to use a reverse mortgage to purchase a home.
What if I change my mind?
There is no obligation. You can cancel anytime throughout the loan process and there are no prepayment penalties. If you want to refinance back into a standard conventional loan with a monthly payment their is no penalty.
Does the bank own my home?
No, the bank never owns your home and you keep to title to the property.
How are reverse mortgage rates calculated?
They are based off a margin set by the lender and an index. The FHA HECM uses the LIBOR index.
How are reverse mortgage costs calculated?
You will have standard closing costs just like any other standard "non reverse" mortgage such as title insurance, government recording fees, etc. There is also a one time up front mortgage insurance premium of 2% of the appraised value. The closing costs are built into the loan and wouldn't be paid out of pocket unless you didn't have enough proceeds to cover everything.
Why use us?
We go straight to the source for best wholesale pricing available and as a small local broker we can provide the same programs without the pushy sales and high costs of big banks and national mortgage lenders.
How do I get started?