What is a Reverse Mortgage & How does it work


 

 

 

The reverse mortgage is a national program for homeowners age 62 and older, which enables you to access your home's equity without a monthly repayment.

The reverse mortgage is safe and is Government-Insured by the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD).

How much can you qualify for?

Use our comprehensive reverse mortgage calculator for a quick quote or call us (800) 565-1722 and speak to one of our experts for a personal analysis.

Does the lender take title to my property?

No, you retain the same ownership and title that you have today. The lender puts a lien on the property just as they would with a regular forward mortgage which is paid off when you sell your property, or when you pass and your heirs inherit and they can pay off the loan with another loan or other funds.

When does the Reverse Mortgage need to be paid off?

When you sell the property or no longer occupy your home as your primary residence for a period of 12 months or longer.

What does the lender expect from me?

You must maintain the property in reasonably good condition.  You must pay the property taxes and the homeowners insurance and any homeowner's association dues you may have.  And of course, the lender expects you to continue to occupy the property.

I currently hold title in a Trust, can I keep it that way?

Yes you can but the lender and title company do require that they review the trust and it must be approved. If you hold title in a trust you should let your Loan Officer know up front so he/she can get a copy of the trust and have it reviewed immediately so that there are no surprises later. Most trusts are prepared with lenders and their requirements in mind so they are not a problem but it is best to know as early on as possible.

Do I need to own my house free and clear, or can I get a reverse mortgage if I already have a loan on my house?

You do not need to own your home free and clear to get a reverse mortgage. The proceeds can be used for any purpose, but any existing liens on the property must be paid off at closing. If the reverse mortgage is not large enough to cover your existing loan, you can still get the reverse mortgage by bringing in the additional funds from another account and still never have to make another house payment!

Will my heirs still receive an inheritance?

Yes, after the balance of your reverse mortgage is paid off, all remaining equity will go to your heirs. One of the forms we provide you with before you close your loan is an amortization schedule so you will always know the principal balance of your loan, year by year. How much equity will remain will Depend on such variables as how much money you draw, how long you stay in your home, home appreciation your home experiences and interest rates (if you have a variable interest rate loan).

What will my heirs have to do if the balance on the loan is greater than the property's value?

This is one of the important safeguards of the reverse mortgage loan.  The loan is known as a "no-recourse loan" which means that you and your heirs can never owe more than the property is worth, regardless of how long you occupy your home, how much money you borrow, or what happens to property values.  The lender's only security for the loan is the property and you and your heirs can never owe more than the property is worth, regardless of the circumstances.

Sounds great so far, what is the down side of a reverse mortgage?

While the reverse mortgage allows you to age in place and has no recourse, you are spending what has typically become a portion of the inheritance people have historically left to their heirs.  With the changing of people's life expectancies, people no longer work until they are 62 and then pass at 70 leaving an estate with a paid off mortgage for their heirs.  Now, people are living longer and need an additional source of income to help fund their retirement as social security is not equipped to fulfill all their needs.  The reverse mortgage is an excellent and viable retirement tool but many seniors find it better to talk to their families early on in the decision making process.  Most family members are not equipped to fund their family needs as well as those of their parents and see reverse mortgages as welcome vehicles for their senior family members, however, communication is highly recommended.

You said minimal credit qualifications, what if I've had a bankruptcy?

Bankruptcies are typically not a problem and there is no time limit after a bankruptcy has been discharged.  However, if you are currently in a Chapter 13 Bankruptcy (where you're making payments), then you have to be able to show that you have been making payments on time for a period of 12 months or more.  The credit requirements are that you are not currently delinquent on a federal debt (SBA Loan, Student loan, FHA home loan, etc).

How do I determine if the Reverse Mortgage is the right loan for me?

The reverse mortgage, especially the HUD Home Equity Conversion Mortgage (HECM) can be a very expensive short-term loan and may not be right for all borrowers. There are many things to consider. With the costs of the loan and the government insurance, if you only need the loan for a very short period of time, a reverse mortgage may not be the right option for you. On the other hand, if you intend to occupy your property for a long period of time and wish to never make another payment for life while accessing your equity in the form of monthly payments, a line of credit, or both, then a reverse mortgage may be perfect for you!

How can I choose to take the reverse mortgage proceeds and are there any restrictions on what I use the funds for?

This is one of the great features of the loan...you have choices!
1. You can take a lump sum, that is, all the cash up front.
2. Monthly Income (Tax-Free, Check with your Tax Advisor)
3. A Credit Line which grows monthly on the unused portion
4. A combination of any of the above, cash, income and credit line
After the lender funds your reverse mortgage loan, you can use the proceeds for any purpose you desire:

Pay off your existing mortgage
Supplement retirement income
Remodel Your Home
Take a Dream Vacation
Pay Medical Expenses
Keep Up with Rising Costs
Buy a new car
Pay Taxes
Help with School Expenses
Or anything else you choose!

What are the interest rates for reverse mortgages?

Rates vary by program.  For example, just within the HUD HECM loans you have fixed rates, monthly adjustable rates, and annual adjustable rates, with the adjustable rates, you have different margins available depending on the secondary market conditions at the time you obtain your loan.  The one thing that you do need to remember is that all HUD rates are regulated in the same manner, that is, the index that drives the rate is the same for all lenders.  The margin that they add to the index is what can vary, and this can be driven by the mortgage market.  The rates for proprietary programs vary with the programs.  We have access to many lenders’ products, not just one or two, so we can be sure to match you up with the program which best suits your needs.  Check current interest rates here »

What are the fees?

FHA regulates the fees that can be charged on the HECM loans. The borrower can pay an origination fee not to exceed 2% of the Principal Lending Limit of the county in which the property is located. This maximum amount is established by HUD. The borrower must also pay the up-front mortgage insurance premium of two per cent (2.0%) of the Lending Limit. In addition to the origination and mortgage insurance, you are also obligated to pay certain third-party charges which include but are not limited to:

Appraisal fees
Escrow fees
Title charges
Recording fees
Credit report fees
And some small other nominal charge

How long before I receive my money?

Quite a bit of this depends on you! The specialists at All Reverse Mortgage Company have many years experience in the mortgage banking industry and have become industry leaders in reverse mortgage loans. We can take you through the process as fast or faster than any other lender but we need your help to get your counseling certificate completed as soon as possible (HUD does not allow us to complete many steps of the process until this very important step has been performed), we need to collect a very few things from you, but we do need to get them and the sooner the better, and we need your help to get the disclosures signed and returned in a timely manner. We can and do close most transactions in less than 30 days but we need your cooperation to do so!

What is a Counseling Certificate?

A Reverse Mortgage Counseling Certificate is the certificate that you receive once you have attended a counseling session conducted by a certified reverse mortgage counselor. The counseling is specific to the program you have selected (whether it be the Government HECM program or one of the private proprietary products available) and can be done either face to face or by phone. We will be happy to give you the name and number for counselors who can offer the counseling for your desired product and we will be happy to assist you in setting up your appointment. Once you have completed the counseling, you will receive a certificate which the lender will require to proceed with your loan. The certificate ensures that you have an understanding of reverse mortgage loans in general and your program specifically.

What are FHA and Proprietary reverse mortgages and how are they different?

The majority of the reverse mortgage loans made today are government loans, insured by the Federal Housing Authority (FHA). The FHA is a division of the Department of Housing and Urban Development (HUD). The government reverse mortgage is known as a Home Equity Conversion Mortgage (HECM) and the government insurance charged on each loan is 2% of the available principal lending limit for each HECM loan insured by HUD. The insurance you pay guarantees you that no matter what happens to the lender in the future, HUD will always make sure that you receive your payments. If anything ever happened, this branch of the federal government will step in and make sure you receive your payments on a monthly basis (if you chose the payment option), or that your credit line is always available to you. A proprietary mortgage does not have the mortgage insurance premiums and there is no federal insurance to guarantee future payments. However, you only owe what you borrow (plus interest and any financed fees) and therefore if you take the full proceeds early in the term (a lump sum option) there is never a concern with future payments anyway. Proprietary programs typically have higher interest rates but lower up front fees.

How do I start the application process for a reverse mortgage loan?

Answer just a few quick questions and we're off! We will only need the following items to get started with the All Reverse Mortgage Specialist picking up a few more during the application process but 4 things starts the process:


1. We need to know your date of birth.  How much you qualify for is determined by the age of the younger of two borrowers (or the single borrower if only one), your property value and the location of your property within HUD's designated areas.
2. The approximate value of your home.  If you know of any homes in your immediate area that are similar to yours that have sold recently, that information is helpful.
3. If you have a current mortgage, we need to know the amount you currently owe.
4. We need your Zip Code for HUD lending limit determination.

What do I need to give my All Reverse Mortgage Specialist?

- Copy of your driver's license or other picture ID
- Copy of your social security card
- Copy of your Homeowners Insurance Policy Declaration Page
- Copy of your Mortgage Statement(s) (need all if any)**
- Copy of your Trust (if your property is in a trust)**
- Copy of the Power of Attorney if someone else will be signing for you**
- Conservator information if you have a court appointed Conservator**
- Bankruptcy discharge papers, if applicable**
**These items are only required if they apply to you.
- If your home is a condominium, I will need the contact information for the holder of the Master Insurance Policy.


Fixed Rate Reverse Mortgage FAQ's


Must I take all available funds at closing?

Yes. The fixed rate reverse mortgage was designed to only allow for a lump sum payout which is calculated based on age and the home’s value.

What if I only want to take a lessor amount?

At any time after the reverse mortgage closes you can choose to repay any portion of the funds received without penalty, partial or in full.

Do I have to pay taxes on the cash received?

No. *Proceeds from any mortgage are not considered taxable income.

When is the interest rate actually locked in?

Once the appraisal completed and the application has been approved we can lock your loan for either 15 or 30days to closing. 

Can I make a payment back on the reverse mortgage?

While regular payments are not required on a reverse mortgage, the program does allow borrowers to make voluntary partial prepayments at any time during the life of the loan. If the loan is a fixed rate, funds submitted for prepayment cannot be re-borrowed at any point during the life of the loan; the revolving credit feature does not apply.

Is the Interest added to my balance tax deductible?

Only when the payment is actually applied or when the balance is paid in full.
Click here to read more on Reverse Mortgages and Tax Implications »

Is there any prepayment penalty should we decide to pay off the reverse mortgage by selling or refinancing?

No. The new transaction would request a payoff demand from the reverse mortgage and would be paid off like any other mortgage.

What happens if the interest accrued exceeds the value of our home?

Part of the HUD insurance guarantees that you and your heirs will never have to pay more than the property is worth in a bona-fide sale. Click here to learn more on Reverse Mortgages and Non-Recourse »

*Always consult your tax professional.