Reverse Mortgage Facts

Here at 1st Step Mortgage Group, Inc we are helping older Americans live in their homes comfortably and securely while taking care of themselves financially by obtaining a reverse mortgage.  A reverse mortgage is exactly what its name states. It is a mortgage in reverse. With a “regular” mortgage, you make monthly payments to the bank. With a reverse mortgage, the lender bases the amount of money they will send you based on the value (equity) of your home, your age, current interest rates, and the county in which you live. Since interest rates have been so low and house values have been increasing at an alarming rate, the time is perfect for seniors to cash in on their home equity. More and more older Americans are remaining in their homes and using reverse mortgages to supplement their retirement income, pay for health care expenses, make home repairs, or establish a line of credit for emergencies. To put it simply, it’s all about quality of life in the golden years. But even though we are hearing more about reverse mortgages, some of the basic facts are often misunderstood.  Let’s start with a few simple questions:

   1. What is a Reverse Mortgage?

 A reverse mortgage is a loan that enables homeowners 62 or older to convert part of the equity in their homes into tax-free income without having to sell the home, without giving up ownership and without making monthly payments. There are no credit or income qualifications, however, you must occupy the home as your principal residence. The property must be a single-family or two-to-four family dwelling. Town homes, condominiums, planned unit developments (PUD) and some manufactured homes are eligible.

 2. Does the bank own your home after you get a Reverse Mortgage? 

No, you own your home and retain full ownership throughout the life of the reverse mortgage.  You are never forced to move and are never required to make a payment for as long as you live in the home. Once the last surviving spouse permanently leaves the property the loan must be repaid. Generally, for a move to be considered “permanent”, you must not have lived in your home for 12 consecutive months.

3. Will I still have an estate that I can leave to my heirs?

 Yes, the remaining equity in your home belongs to you or your heirs. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest, to the lender. None of your other assets will be affected by HUD’s reverse mortgage. The debt will never be passed along to your estate or heirs.

 4. Will a Reverse Mortgage affect my Social Security or Medicare benefits? 

No, Social Security and Medicare benefits are not affected by a reverse mortgage. But Supplemental Security Income (SSI) and Medicaid are different. In general, loan advances do not affect SSI and Medicaid benefits if you spend them during the calendar month in which you get them. The IRS does not consider loan advances to be income so the reverse mortgage proceeds are tax free. Please consult your tax advisor.

5. How much money can I get? The amount of money you can borrow depends on your age, the current interest rate, the appraised value of your home, and the county in which you live. Generally, the more valuable your home is and the older you are, the more money you will have available. Here is an example: A 65-year-old homeowner with a home appraised at $150,000 with no mortgage could receive either a lump sum or credit line of $82,236 or receive a monthly check of $487 for life. A 75-year-old could receive a lump sum of $99,483 or a $642 monthly check for life. (figures as of 2/25/2008)

 6. Does your home have to be paid off to qualify for a Reverse Mortgage? 

No, even seniors with an outstanding first mortgage or home equity loan can qualify for a reverse mortgage.  The proceeds from the reverse mortgage must be first used to pay off any liens on title with the remaining proceeds to be distributed to you.

 7. Are there any restrictions on what I can do with the proceeds from a Reverse Mortgage?

 No, there are virtually no restrictions. You can use the reverse mortgage proceeds to pay off bills, make home modifications, buy a car, pay medical and prescription expenses, travel, etc… 

8. How do I receive my payments?

 A reverse mortgage allows you to receive your money in several ways. The most popular is the credit line growth account. This option allows you to borrow money as you need it. You can also receive a lump sum or fixed monthly checks for the rest of your life, much like an annuity or pension. You can also receive a combination of these three options. 

9. How safe is a Reverse Mortgage?

 Created in 1989 by the U.S. Department of Housing and Urban Development, HUD’s reverse mortgage program is a federally-insured private loan. The feature that distinguishes a reverse mortgage from other loans – and makes it so valuable to many senior homeowners – is that no money has to be repaid until they permanently move out of the home. HUD insures that both the homeowner and the lender will receive the benefits outlined in the reverse mortgage.  If you’re living beyond the income your retirement plan provides, a reverse mortgage can be a low-risk way for you to remain in your home for the rest of your life. If you’re like many older Americans, your home is your largest asset, and although you may have concerns at the thought of borrowing on it, your house may be the only way to increase your income. Before making any financial decisions you should check out all options available to you and choose what is best for you. Turning your house into your pension is your reward for being frugal and paying down your mortgage, instead of burying yourself in debt.  A reverse mortgage may be the perfect solution.