Reverse Mortgage FAQs

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Reverse Mortgage FAQs

What is a reverse mortgage?

A reverse mortgage is a loan that allows homeowners 62 years of age and older to use their equity to generate tax-free income, without having to sell the home or take on a new mortgage payment. In fact, the reverse mortgage is exactly what the title states, the reverse of a standard mortgage.

How is a reverse mortgage different from a standard mortgage?

With a standard mortgage, the borrower (or homeowner) makes monthly payments to the lender (or bank or mortgage company), in order to pay back the loan that the lender originally lent to for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, the situation is reversed; the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures their loan amount by using the house as collateral.

Do I make monthly payments on a reverse mortgage?

No monthly payments are due on the loan and the loan is repaid when the moves or sells the home, passes away, or ownership otherwise changes hands.  The lender will require a borrower to continue making property tax and insurance payments.

What factors determine the amount of the reverse mortgage?

There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower s (and co-borrower s) age, current interest rates and any lending limits that may be standard for your geographic area. As a rule of thumb, the older the borrower and the more valuable the home, the larger the available loan amount.

What can we use a reverse mortgage for?

The proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses, to settle other debts, or for their long-planned vacation! Reverse mortgages are available for nearly all property types with the exception of co-ops, though co-op owners in some metropolitan areas, specifically New York, should have local options.

Can I receive a lump sum payment from a reverse mortgage?

Homeowners can choose how they want to receive their payments, either as a lump sum, monthly payments or as a line of credit. The line of credit is the most popular option, with nearly 60% of reverse mortgage borrowers choosing to the option to draw income or a lump sum off the line at the time of their choosing.

What happens if I decide to sell my house?

If the home is sold and the proceeds of the sale exceed the mortgage amount, the balance belongs to the borrower or their heirs.

What happens to my existing mortgage?

For reverse mortgage borrowers with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not ample to pay off the existing mortgage, the borrower will need to access savings or other sources to pay off the rest of existing mortgage amount. In this scenario, the borrower won t have access to any additional funds from the reverse mortgage; however, they will no longer have a mortgage payment!

Can I get expert advice before I get a reverse mortgage?

One very important facet of the reverse mortgage process is the consumer counseling that is required for borrowers contemplating a reverse mortgage. Your lender can help you find counseling agencies and most programs are approved and monitored by HUD and/ or AARP. The counseling is required to make sure that the terms and risks of the program are clear to you. Counselors are obligated by law to review with you all of the implications of the new mortgage, and what your potential options are.

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9 Comments

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  • KT
    Jun, 2012
    Ken
    Say you get an appraisal of 180000 on your home and you owe 85000 on your existing home. What amount is the Mortgage company lending you. The 85000 that you owe, or is the 180000 what is financed. So, exactly how much is going to be owed on the reverse mortgage, the loan payoff or the appraisal price.
    0 Votes

    • BA
      Jun, 2012
      Bill
      Reverse mortgage lenders look at the available equity. Here, the property is valued at $180,000 with a mortgage of $85,000, which leave an available equity of $95,000. However, you will not be able to borrow $95,000. The amount you can borrow depends on:
      • The age of the youngest borrower
      • Current interest rates
      • The appraised value (there are upper limits, but they do not apply in your case)
      • The Mortgage Insurance Premium you pick — HECM Standard or HECM SAVER

      In general, one can borrow more with the HECM Standard MIP. Also, the more valuable a home is, and the older you are, and the lower the interest rates, the more you can borrow.

      0 Votes

  • WC
    Oct, 2011
    wilma
    Philadelphia, PA
    can I cancel after siging the estimate papers. did not accept the appraisal to visit my home.... only had conseling and a notary visit with the estimate papers
    0 Votes

    • BA
      Oct, 2011
      Bill
      Depends on what promises you agreed to in the "estimate papers" you signed. Take all of the documents you have regarding the loan to a lawyer in your state who has contracts, consumer law, or real property experience. He or she will read the contract you signed and will advise you precisely.
      0 Votes

    • WC
      Oct, 2011
      wilma
      Philadelphia, PA
      I signed Estimate papers for a reverse mortgage. It was an estimate of what my house is worth, what I would get under that estimate there is no real figures, no one appraised my house, there is no final paper sign... no closing date... no figures what my house is priced for. Do I have three days to cancel? Thanks
      0 Votes

    • BA
      Oct, 2011
      Bill
      It is not clear to me what exactly you signed when you signed the "Estimate papers," but it does not sound to me like you have signed the paperwork to close your loan.

      If you have signed final paperwork, then you have three days to rescind your decision. Because of the timeliness required, make sure you communicate with the lender and send the notice in a way that you can prove that it was done within the three day window.

      In your case, if I am correct in my assumption that you did not sign final paperwork, you can cancel the process, but it is not due to the three day right of rescission.
      0 Votes

    • C
      Oct, 2011
      ...
      Philadelphia, PA
      I did not sign final papers a notary brought me estimate papers on Friday 09/30/2011 on 10/01 I left to message on thier machine canceling out..also sent them a letter of canceling all transaction with a sign receipt from USPS 10/03/2011
      0 Votes

    • BA
      Oct, 2011
      Bill
      Notaries are not sent to witness the signing of estimate papers. It costs money to use a notary. A notary is there to witness and authenticate the signing of legal documents.

      The fact that you were told it was only 'estimate papers' concerns me.
      0 Votes

    • WC
      Oct, 2011
      wilma
      Philadelphia, PA
      The papers I have reads estimate. I canceled yesterday.
      0 Votes

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