What are My Payment Options?
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments (for up to life), as a line of credit, or a combination of these. The most popular option is the line of credit, which allows someone to draw on the loan proceeds when needed.
How Much Money Does Someone Get?
The amount of money you are eligible to receive depends upon your age (or age of youngest borrower in the case of couples), appraised home value, current interest rates, and the lending limit. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
Does My Home Qualify?
Eligible property types include single-family homes, manufactured homes (built after June 1976), condominiums, and townhomes. Co-ops may be allowed by the fall of 2009.
How Are Proceeds Used?
The proceeds from a reverse mortgage can be used for anything. Most often a reverse mortgage is used to supplement retirement income to cover daily living expenses, repair or modify the home (i.e., widening halls or installing a ramp), pay for health care, retire existing debts, cover property taxes, or prevent foreclosure.
Are There Any Special Requirements to Get a Reverse Mortgage? As long as you are on title, at least 62 years old, and have sufficient equity, you can get a reverse mortgage. There are no special income or medical requirements.
What If There's An Existing Mortgage?
You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing mortgage must be paid off with the reverse mortgage, or with savings.
For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish.
If, however, you only qualify for $85,000, then you would need to come up with $15,000 from your savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, you won't have a monthly mortgage payment.
How are Government Benefits Impacted?
A reverse mortgage does not affect regular Social Security or Medicare, but can impact Supplemental Security Income (SSI) and Medicaid benefits. Any reverse mortgage proceeds received by someone receiving SSI or Medicaid must be used immediately. Any funds retained would count as an asset and could impact eligibility. For example, if the beneficiary receives $4,000 in a lump sum for home repairs and spends it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.
Why Is Counseling Mandatory?
Counseling is one of the most important consumer protections built into the program. It requires an independent third-party counselor approved by the U.S. Department of Housing and Urban Development to make sure you understand the program and alternative options, before applying for a reverse mortgage.
A borrower can seek counseling from a local HUD-approved counseling agency, or a national counseling agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), Money Management International (877-908-2227), CredAbility (800) 251-2227) and National Council on Aging (800-510-0301).
Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone.
By law, a counselor must review (i) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives; (ii) other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; (iii) the financial implications of entering into a reverse mortgage; and, (iv) the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or his or her heirs.
When Do I Pay Back My Loan?
No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of the home, as long as the property is sold to pay back the balance. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.