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What is a reverse mortgage?
A reverse mortgage is a federally regulated loan designed specifically for senior homeowners. A reverse mortgage converts the seniors' home equity into tax-free cash that can be used to provide supplemental income for monthly living expenses, medical bills, in-home health care, home improvements, or major purchases. There are no income, employment, or credit qualifications, and you don't have to make any monthly payments until you move out of your home permanently.
How old must I be to qualify for a reverse mortgage?
All parties on the title must be at least 62 years old. Some programs allow seniors to qualify at age 60.
Is a reverse mortgage safe?
A reverse mortgage is a federally regulated mortgage program that was designed and backed by HUD (The US Department of Housing and Urban Development). The federally regulated safety features built into this program protect you from any issues that may arise with your lending institution or other third parties. HUD and FHA (the Federal Housing Administration) require that all seniors receive third party counseling. Third party counseling ensures that you are making an educated decision about your financial future. In order to be fully informed, we recommend that you also seek out independent consumer information from well-known national organizations such as the AARP (American Association of Retired Persons) and the National Reverse Mortgage Lenders Association.
How is interest charged?
When applying for a reverse mortgage, you have the option of choosing between an adjustable rate mortgage (ARM) or a fixed rate for life. Interest rates are set at the date of application or date the loan closes. The interest rates affect the balance due at the end of the loan term. The interest rates on ARMs are tied to market indexes (either the 6 month libor or the 1-yr Treasury) and adjust monthly, every six months or annually, whichever you choose. An ARM will not effect your monthly income payment or the amount that you can access from your credit line, but it will affect your loan balance. Because there are various options available to you, we suggest that you schedule an appointment, so we can better inform you.
How do I receive my money?
Borrowers can choose to receive the mortgage funds as a lump sum, monthly income, line of credit, or any combination.
Are the payments I receive taxable?
No! The payments are not subject to income taxes, because you are just borrowing on your home. Since you already paid for your home once, you should not have to pay for it again.
Do I still pay property taxes and insurance on my property?
Yes! You must still pay property taxes and maintain your hazard insurance.
Will a reverse mortgage affect my Medicare, Social Security, or other government benefits?
A reverse mortgage will not affect regular Social Security or Medicare benefits. You are free to spend the money any way you like. However, if you are receiving Medicaid or other types of Social Supplemental Income, any funds that you retain may count as an asset and could affect your eligibility. We advise that you contact the appropriate agency to ensure that a reverse mortgage will not affect your benefits.
Can my spouse continue living in our home and receive benefits if I pass away?
If your spouse is a legal co-owner of the home, he or she can continue to live in the home and continue to receive the existing benefits. The loan balance would be due and payable only when your spouse passes away or decides to move.
Can I be forced to sell my home if the money I owe on the loan exceeds the value of my home?
No! As long as you continue to occupy the property as a principal residence, you will not be forced to sell or vacate your home, even if the total of the mortgage payments made to you, plus interest, exceed the value of the property. No deficiency judgment may result from your loan. There will NEVER be a debt to the heirs or the family.
Who will be entitled to the money if the home appreciates in value during the life of the loan?
Any equity remaining in the property after the mortgage is paid off goes to you or your heirs.
What if I would like to sell my home?
If you decide to sell your home, the outstanding balance becomes due and payable. You, or your heirs, will receive any proceeds exceeding the loan balance.
When is the loan due?
When none of the borrowers reside in the homeâ€"the loan is due. The family or heirs can sell or refinance the home to pay off the reverse mortgage.
Myths and Realities
Myth #1-The bank owns the home when I get a reverse mortgage.
Reality- Just like a regular home mortgage, you own your home and retain the title with a reverse mortgage. When you move permanently, pass away, or pass it to your heirs, your reverse mortgage must be repaid.
Myth #2- Reverse mortgages are only for desperate seniors or for those that are "house rich†and "cash poor.â€
Reality- That is absolutely wrong! A reverse mortgage is a financial planning tool used by seniors of all income levels. It enhances their lives in diverse ways. While some may use it for health care or immediate necessities, others choose to use a reverse mortgage to purchase a vacation home, finance the educations of their grandchildren, or even invest in businesses.
Myth #3- My home must be free from any outstanding mortgage or debt.
Reality- The amount of a reverse mortgage is determined by your age and the amount of equity in your home. Even if you have an outstanding mortgage on your home, you may still qualify. The proceeds of the reverse mortgage will be used to pay off any outstanding mortgages.
Myth #4- When a reverse mortgage becomes due, the bank will sell the home.
Reality- The loan must be repaid if you move permanently from the home. The borrowers or their heirs may choose to pay off the loan and keep the title to the home or sell the home and use the proceeds to pay off the reverse mortgage.
Myth #5- If my loan exceeds the value of my home, I will own more than my home's value or the government will take away my home.
Reality- You will never owe more than your home is worth. For your protection, there is a cap on the repayment, so it can never exceed the value of your home. As long as you remain living in your home, the government cannot take it away.
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