What is a Reverse Mortgage?

You are eligible for a reverse mortgage
if: You are 62 years or older You own your home House is in good condition

A reverse mortgage is a loan for seniors age 62 and older. HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA) and allow homeowners to convert their home equity into cash with no monthly mortgage payments. After obtaining a reverse mortgage, you as the borrower must continue to pay property taxes and insurance and maintain the home according to FHA guidelines. Typically the loan does not become due as long as you live in the home as your primary residence and continue to meet all the loan obligations.

You can do anything you want with your reverse mortgage! You can pay for home renovations, medical and daily living expenses, or retire and never work again! Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their existing mortgage and eliminate monthly mortgage payments.

A reverse mortgage loan uses your home’s equity as collateral. There has never been a better time to obtain a reverse mortgage. Home values have soared over the past 5 years. The amount of money a borrower can receive is determined by the age of the youngest borrower, interest rates and the lesser of the home’s appraised value, sale price and the maximum lending limit. It is very important to understand that despite not having any monthly mortgage payment, you will however be responsible to continuing to make the property tax payments and maintain insurance on the property.

The reverse mortgage loan does not generally have to be repaid until 6 months after the last surviving homeowner moves out of the property or passes away. At that time, the estate typically sells the home to repay the balance of the reverse mortgage and the heirs receive any remaining equity. The estate is not personally liable for any additional mortgage debt if the home sells for less than the payoff amount of the reverse mortgage loan.

How Much You Can Borrow With a Reverse Mortgage

When you take out a reverse mortgage, the lender will let you borrow a percentage of your home equity. A reverse mortgage typically lets you borrow up to 60 percent of your home equity, but the actual amount you take out depends on a few factors, including:

Age – The older you are, the more you can potentially borrow. Since you can stay in your home for the rest of your life without paying back the reverse mortgage, the lender uses your life expectancy to estimate how long it will be until it’s repaid. As you get older, the lender lets you borrow a greater percentage because it predicts it will be paid back quicker.

Appraised value of your home – The more valuable your home is, the more you are able to borrow.

Current interest rates – A reverse mortgage is still a loan. The lender is charging interest on the amount of money you take out. The higher market interest rates are, the less money you will receive because a higher percentage will be going toward interest.

Inheritance

When the reverse mortgage loan does become due, the borrower’s heirs/estate can choose to repay the reverse mortgage loan and keep the home or put the home up for sale in order to repay the loan. If the home sells for more than the balance of the reverse mortgage loan, the remaining home equity passes to the heirs.

If the home sells for less than the owed balance, the estate is not required to pay more than the value of the home at the time the loan is repaid.

A reverse mortgage loan is “non-recourse”, meaning that if you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

Distribution of Funds

Reverse mortgage loan proceed can be received in any combination of the following options:

• • Line of credit – draw as needed up to the maximum eligible amount
• • Lump sum – a lump sum of cash at closing (only available on fixed-rate loans)
• • Tenure – monthly payments for the life of the loan
• • Term – monthly payments for a specific number of years

Borrowers may access the greater of 60 percent of the principal limit amount or all mandatory obligations, as defined by the HECM requirements, plus an additional 10% during the first 12 months after loan closing. The combined total of mandatory obligations plus 10% cannot exceed the principal limit amount established at loan closing. The borrower may also need to set aside additional funds from the loan proceeds to pay for taxes and insurance. If you have questions, please contact us.

Initial Mortgage Insurance Premium (MIP)

The FHA charges an upfront fee to pay for its guarantee of HECM reverse mortgages, known as mortgage insurance. This initial fee for the Mortgage Insurance Premium is 2 percent of the maximum claim amount, according to the Department of Housing and Urban Development, which is typically the appraised value of your home when you take out the loan.