Reverse Mortgage Questions & Answers
A reverse mortgage is a special type of home loan, also known as a Home Equity Conversion Mortgage (HECM), that lets you convert a portion of the equity in your home into cash. Equity that you’ve built up over years of home mortgage payments can be paid to you. However, unlike a traditional home equity loan or mortgage, there are no monthly payments, and no repayment is required until you move out, or pass away.
If you are a homeowner 62 years of age or older, own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you live in the home, you are eligible for a HECM loan. In order to qualify you are required to receive consumer counseling from a HUD approved HECM counselor prior to obtaining the loan. This counseling is available at low cost. We will be happy to assist you in finding a qualified counselor.
Yes, a HECM can be used to purchase a primary residence if you have cash available (usually from the sale of your previous home) to pay the difference between the HECM proceeds and the sale price of the new home.
Single Family homes, 2-4 unit homes, FHA/HUD approved condominiums.
Both a reverse mortgage and a home equity loan use the equity you have in your home to generate loan proceeds. With a home equity loan, you need to make monthly payments on the principal and interest. With a reverse mortgage, you don’t need to make monthly mortgage payments for as long as you stay in the home. Your loan balance increases each time you receive a payment, and interest on the loan is added to the balance. The loan is repaid only after you sell or permanently leave the home.
When the loan becomes due, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and closing fees. The loan can be repaid by selling the home, and any sale proceeds in excess of the loan balance belong to you or your heirs. If you sell the home for a fair market price that is less than the balance owed on the reverse mortgage, the lender cannot claim from you or your estate more than the sale amount received.
The amount you can borrow depends on several factors, including your age, the type of reverse mortgage, current interest rates, the location and appraised valued of your home and Federal Housing Administration (FHA) lending limits in your area.
You have a range of options:
- Lump Sum
- Lifetime monthly payments to you
- Term monthly payments to you (will end after a specified term)
- Line of credit (take funds when you need them)
- Any combination of the above
The length of a Reverse Mortgage will vary depending on the amount and frequency you wish to withdraw. Reverse mortgages make the most sense for you if want to stay in your current home for several years.
Yes refinancing is possible. This option can be advantageous if the home increases in value, and there is sufficient equity in your home.
The surviving borrower can continue to own and live in the home, and enjoy all the benefits of the reverse mortgage. Repayment is not due until all borrowers permanently move out of the home or pass away.