Reverse Mortgages – Frequently Asked Questions

Q. Who are reverse mortgages designed for?
A.  They are designed for homeowners at least 62 years of age with significant equity in their homes.

Q. Can a reverse mortgage be taken out if there is already a conventional mortgage on the home?
A. Yes, but any existing mortgages must be paid off at closing. The proceeds from the reverse mortgage may be used for that purpose.

Q. What types of homes won’t qualify for a reverse mortgage?
A. Generally vacation homes or other secondary residences, mobile or manufactured homes not attached to a permanent foundation, rental properties of more than four units and homes on leased lands do not qualify.

Q. What about a home in a “living trust”?
A. A homeowner who has put the home in a living trust can usually take out a reverse mortgage, subject to review of the trust documents.

Q. Will I have any tax liability for the reverse mortgage proceeds?
A. Currently the Internal Revenue Service treats monies received from a reverse mortgage to be loan advances and not taxable income. For your specific situation, we recommend that you consult your tax advisor.

Q. Can the interest charged on my loan principal be deducted for tax purposes?
A. The interest accrues and is deductible when the loan balance and interest is repaid, when the borrower permanently leaves the property. For your specific situation, we recommend that you consult your tax advisor.

Q. How do the monies from a reverse mortgage affect Social Security, Medicare or pension benefits?
A. The proceeds from a reverse mortgage do not affect these benefits. For your specific situation, we recommend that you consult your financial advisor.

Q. Who are the top reverse mortgage lenders?

A. Although these are not recommendations, the two top lenders by volume are American Advisors Group (AAG) and One Reverse Mortgage.

Q. If I take out a reverse mortgage will my SSI or Medicaid benefits be affected?
A. No, A reverse mortgage will not affect these or most other means tested benefits as long as the monthly cash advances are fully spent every month and not accumulated. Programs do vary by state so it’s advisable to check with the local Area Agency on Aging. We also recommend that you consult your financial advisor.

Q. What are the upfront costs associated with a reverse mortgage?
A. The borrower will pay an origination fee and actual closing costs, including charges by the title and escrow companies. All of these costs can be financed as part of the initial loan advance.

Q. What is due when the loan is repaid?
A. The borrower pays back the cash advances they have received plus accumulated interest.

Q. What if I owe more than my home is worth?
A. All reverse mortgages are “non-recourse” loans, which means that the borrower can never owe more than the value of the home regardless of loan balance.

Q. Does the lender take the house?
A. This is a misconception; a reverse mortgage is merely a loan against the property. The title remains in the name of the borrower and the lender is only repaid the loan balance or the home value which ever is less.

Q. If there are no payments, what are my responsibilities as a borrower with a reverse mortgage?
A. You are required to pay your property taxes, keep current property insurance in place, maintain the home, and notify the lender if you will be away from the property for an extended period.

Q. When does the loan become due and payable?
A. The loan is due and payable when the borrower sells the property, permanently leaves the home, or passes away. In the case of a couple, it is the second to move out or die that triggers repayment. Until these events take place you live in the home and make no payments to the lender.

Q. Do I or my heirs have to sell the property to repay the loan?
A. No, repayment can be accomplished by a refinancing of the existing reverse mortgage by a conventional mortgage loan.

If you have any more questions please contact HUD.

Benefits of Refinancing a Home Loan

Nowadays, there seems to be so many options for mortgages. Although the total term of the mortgage may be amortized over twenty-five or thirty years, the home loan is typically re-signed or eligible for refinance at regular intervals. The time between due dates can be as long as five years, and as short as one year. By knowing that there is the opportunity to refinance a mortgage, and by knowing the exact date, those who have mortgages on their homes can actually budget more efficiently, and can impact their future financial well-being. Without doubt, renewing a mortgage has merit for the payer, and there are many benefits of refinancing a home loan.

Since refinancing a home loan is important, we have discussed the top main benefits of refinancing a home loan.

Shortens the Term of the Mortgage

Because you know when you are allowed to refinance your home loan, you can actually incorporate into your personal budget a time frame that best suits you paying off the mortgage entirely. For example, if you originally signed a mortgage contract that was amortized over twenty-five years and you receive a raise at work, you can now increase the payments, allocating the raise money to the mortgage, thereby decreasing the time required to fulfill the home loan requirements. In reality, your home will be paid off, and clear of title within a shorter period. Likewise, if you have paid off other loans such as a car loan or school loan, that money can be redirected to the home loan when refinanced.

Decreases the Amount of Mortgage when Paying a Lump Sum

Much like reallocating new available monies, if you receive a bonus at work, or you have been able to save a lump sum amount, you can apply those monies to your mortgage at the time of refinancing. This allows you to reduce the amount you actually owe which in turn saves you considerably on interest over the long term, and permits you to reduce the number of years involved in the amortization.

Allows “Gambling” on the Interest Rate

If economic indicators predict that interest rates are bound to fall, refinancing a home loan would be hugely beneficial, especially if you keep the payments at the same amount. In this scenario, your payments will be going to more of the principal instead of interest. Even if you decide to lower your payments with the new schedule, you can use the extra money saved from the decrease in interest rates to buy or invest in something else.

Allows You to Review Your Options

Agreeably, if you were required to lock in your home loan for the duration of the amortization period, you would never be able to react to other factors in your budget or economic situation. Further, being able to refinance a home loan on a specific date allows you to review your options and find a competitor with whom to sign. His offer may be much better than your existing contract.
Concluding, the ultimate goal of most individuals is to own their homes as quickly as possible. In order to build greater equity in a shorter amount of time requires the ability and the permission to refinance their home loans.

More Information

A Consumer’s Guide to Mortgage Refinancing

Refinance a Home Mortgage Loan