Questions and Answers / Myths

A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home.

*Consult Tax Advisor. Not all products available in all states.

Because of the lobbying efforts of AARP in the 1980's, the U.S. Government established the reverse mortgage program through HUD in 1989. It’s purpose was to provide a means for seniors to stay in their homes for the rest of their lives but obtain cash or income from the equity they built up in their home over the many years of making that monthly mortgage payment. The government did this for seniors because their earning capacity diminishes as they get older yet, due to rising medical costs as we age, expenses often go up.

Reverse Mortgages sponsored by HUD is the U.S. Government’s response to the plight many seniors faced with being “home rich” but “cash poor”. It should be noted that the absolute last thing the government wants is a seniors program that takes advantage of seniors. For that reason, the U.S. Government has put in two very important safeguards.

1. Cap on fees and expenses - the interest rate and all fees associated with reverse mortgages have caps on them to protect seniors.
2. Required counseling for suitability - HUD requires that anyone getting a reverse mortgage make sure it’s right for them by getting “counseling” from a non-profit, approved counseling agency.

   The counseling usually takes 45-60 minutes and the person is issued a counseling certificate.

Two reasons a reverse mortgage is better;

First, with a reverse mortgage the senior doesn’t have to make monthly mortgage payments. With a traditional mortgage, monthly payments are required. Remember, with a reverse mortgage the principal and interest is not repaid until the borrower dies. If a married couple does a reverse mortgage, both must die ( or permanently move out of the house ) before the reverse mortgage must be repaid.

The second reason a reverse mortgage is better is because there is no “income or credit qualifying” with a reverse mortgage. If the person is 62 or older, he/she qualifies irrespective of his/her income. With a traditional mortgage, a person must have good credit and qualify from an income standpoint to support the borrower’s ability to make the monthly mortgage payments.

Through a U.S. Government program you can obtain a loan for approximately 45%-75% of the value of your home and you never have to repay the loan in your lifetime as long as you live in your home. The only requirement is that you must be 62 or older and own your own home. There is no "good credit" or income requirement to obtain the loan.

Here’s an example: Let’s say you are 71 and own a house with a value of $180,000 with an existing mortgage of $23,000. That existing mortgage has payments of $600 a month. If you get a reverse mortgage, you would receive the following:

1. $60,000 cash: You would receive about $60,000 in cash that would be paid to you immediately or in monthly payments.
2. $600 a month existing mortgage payment goes away: You no longer have to pay that $600 a month payment because the existing $23,000 mortgage is paid off when you get a reverse mortgage. This is accomplished by the U.S. Government program loaning you 50% of the value of your home ($90,000) via a reverse mortgage. With the $90,000, you would then pay off the existing $23,000 mortgage on the house with the balance ( after closing costs ) going to you in cash.As to repayment of the reverse mortgage loan, no repayment is required during your life time as long as you continue to live in your home. Upon your death, the reverse mortgage ( principal and interest ) must be paid by your estate.

   You get cash today and don’t have to repay that cash in your lifetime. That’s what makes a reverse mortgage so unique.

   Further, you retain 100% ownership in the home and you and your heirs get all the future appreciation in value of your home. And, best of all, the only requirement is that the homeowner simply must be 62 or older. That’s it; there are no other requirements.

There are fixed rate as well as adjustable rate reverse mortgages. Normally interest rates on reverse mortgages are lower than conventional home mortgage rates and equity loan rates because they are government insured loans.

No. But there are fees to get a reverse mortgage and they will be added to your loan balance so that you do not have to pay them at closing. On average, these fees that are added to the loan run $6,000 - $10,000 and can be more for higher value houses.

There are no out-of-pocket costs; all fees are similar to a traditional home mortgage loan. There are no unusual fees associated with a reverse mortgage.

They used to be high. But in early 2010 the fees were greatly reduced due to the fact that the lenders have agreed to pay either the origination fee or the mortgage insurance for the borrower. Additionally, lenders eliminated the monthly service fee. For these reasons, the cost of reverse mortgages have been greatly reduced, on average by about $8,000

It is your money and how you spend it is completely up to you!

Absolutely not! As long as you continue to live in your home as your primary residence, you will never be asked to sell or move out of your home.

Your heirs may either repay the full loan and keep the house in the family or sell the property at its “fair market value”.

No additional financial claims may be made against your heirs or estate because the reverse mortgage loan is non-recourse, which means that if the loan amount is greater than the home’s value upon the sale of the property, any outstanding debt balance will be forgiven.

Under the terms of the reverse mortgage, you are legally required to pay back only the outstanding balance of your loan. You or your heirs are entitled to any and all appreciation in the value of your home that exceeds the loan balance.

The maximum amount that can be borrowed is based on a HUD formula that factors in the age of the youngest borrower, the average expected interest rate, the anticipated rate of your home’s appreciation, and the current value of your home within the FHA insured limits for your area.

Upon request, a summary is available for your home and the amount of payment you’re now entitled to. Typically a person can borrow about, for general purposes, 50%-75% of the value of their home. For a person 70 years old, they can receive about 54% of the value of the house. If you are older than 70, you can receive a higher percentage. If younger, a slightly lower percentage.

Monies received will not affect eligibility for retirement, survivor, disability, or Medicare benefits payable under the Social Security Act. For means based programs like Medicaid, a reverse mortgage can effect one's qualifications for such programs.

If you choose to sell your home, the outstanding reverse mortgage loan balance will have to be paid at closing. You or your estate will receive any proceeds exceeding the loan balance.

A HUD and FHA formula has historically been about 4% each year. It should be noted that approximately the first 3%-4% of appreciation in your house each year will cover the interest being added to your loan by the reverse mortgage.

Reverse mortgages are insured by the U.S. Government through HUD The fees and expenses that can be charged on a reverse mortgage are tightly regulated by HUD in order to protect the senior.

Often heirs and children want the senior citizen to have the best quality of life available. Heirs and children will still benefit from the remaining home equity, future home equity, and the rise in the value of your home.

Most seniors don’t want to be a burden to their children or heirs; a reverse mortgage gives financial independence and control to the senior. The heir or children of the senior continues to be the best referral of a Reverse Mortgage Program.

Normally it takes 35 to 45 days.It can be longer if there are titles issues or unusual circumstances.

Reverse Mortgage of Texas is an Approved Direct Lender by Fannie Mae and HUD and is one of the founding companies in the reverse mortgage industry in Texas. The reverse mortgage process is a standard process throughout the country.

The principal of our company is a CPA and we employ senior citizens that have completed and received a reverse mortgage; their experiences may assist you. This is our exclusive business; we do nothing but reverse mortgages.

The only requirement is that the homeowner is 62 or older. Regarding the home itself, the only requirement is that existing mortgages ( if any ) cannot exceed about 50%-75% of the value of the home, the home meets FHA standards, and the title of the home is in the name of the person who lives there.

A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home.

*Consult Tax Advisor. Not all products available in all states.

Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash.

They differ in that with a home equity loan you must make regularly monthly payments of principal and interest. However, with a reverse mortgage you do not make any monthly payments for as long as you stay in the home.

No. Since reverse mortgage borrowers need not make monthly repayments, there are no income qualifications.

There are many. Here are a few of the most significant:

• Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership
• Stay in your home. It allows you to remain in your home and retain home ownership.
• No monthly mortgage payments. You need to pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
• Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax-free* and will not affect your Social Security or Medicare benefits.
• Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.

*Consult Tax Advisor

It's absolutely false. The borrower retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.

Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses - just as they would with a standard first mortgage or home equity loan.

Yes. Refinancing can make sense if your home increases in value or interest rates drop.

No. You can never owe more than what your home is worth. What's more, since the reverse mortgage is what is known as a "non-recourse" loan, the lender cannot seek repayment from your income, your other assets, or your estate. In other words, the house stands for the debt.

No they cannot. And the loan is not due at the time either. In fact, you don't need to repay the loan as long as you or another borrower continues to live in the house and keep the taxes paid and insurance in force.

The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, and the appraised value of your home and FHA's lending limits for your area. In most cases the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

You can use the money for anything you choose, from daily living expenses, home improvements, healthcare expenses, paying off existing debts, or simply enhancing your retirement years. For many people, the money provides a "financial security blanket," in case unexpected expenses arise.

Most definitely. With most reverse mortgages you have a wide range of payment options, one of which should be ideal to meet your financial needs.

• You can choose to receive the money all at once, as a lump sum.
• You can receive equal monthly payments as long as one of the borrowers lives and continues to occupy the property as a principal residence.
• You can choose to receive equal monthly payments for a fixed period of months.
• You can get a line of credit, which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.
• You can opt for a combination of line of credit with monthly payments for as long as the borrower remains in the house.
• Or, finally, you can choose a combination of the above.

Seniors 62 years of age or older quality. There are no income, health or credit qualifications.

Yes. You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage. The funds you would receive in the reverse mortgage would be used to pay off whatever existing mortgages you have on the property.

Unfortunately, no. Reverse mortgages may only be taken out on your primary residence.

First and foremost, the reverse mortgage must be on the borrower(s) primary residence, that is, where they live most of the year. Most reverse mortgages are taken on single family, one-unit homes. Some programs grant reverse mortgages on condominiums and manufactured homes built after June 1976. Mobil homes and cooperatives are generally not eligible for a reverse mortgage.

Yes. In most cases a homeowner who has put his or her home in a living truse can usually take out a reverse mortgage. A review of the trust documents would be made by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.

No, actually there are three basic types of reverse mortgages:

1. Federally-insured reverse mortgages. Known as Home Equity Conversion Mortgages (HECM), they are insured by the U.S. Department of Housing and Urban Development (HUD). They are widely available, have no income requirements, and can be used for any purpose. (For more on HECM reverse mortgages, go to: http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm

2. Government-sponsored reverse mortgages. A "Home Keeper" is Fannie Mae's conventional market alternative to the Home Equity Conversion Mortgage (HECM). It is government-sponsored enterprise program and works like a HECM loan in many ways. However, a "Home Keeper" reverse mortgage addresses a few needs that are not met by HECM loans, such as individuals with higher property values, condominium owners, and seniors wishing to use a reverse mortgage to purchase a new home. (For more on Fannie Mae "Home Keeper" reverse mortgages, go to: http://www.financialfreedom.com/ReverseMortgage/Products/#FMHK

3. Proprietary reverse mortgages. These are private loans with unique features that appeal to certain kinds of borrowers. An example of such reverse mortgages, which are backed by the companies that develop them, is Financial Freedom's Cash Account Plan. (For more on Cash Account Plan reverse mortgages, go to: http://www.financialfreedom.com/ReverseMortgage/Products/#FF_CASH_ACCOUNT

Your reverse mortgage loan becomes due and must be paid in full when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems.

When the last surviving borrower permanently moves out of the home or dies, the revers mortgages loan becomes due. The reverse mortgage principal, interest charges, and service fees ( such as closing cost fees) are paid from the sale of the house or assets of the estate.

When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs. Its important to remember that you can never owe more than the home's appraised value when it is sold. None of your other assets will be affected be your reverse mortgage loan.

No. Repayment may be accomplished by refinancing the reverse mortgage with a traditional "forward" mortgage loan, or though the use of other assets.

Most reverse mortgages have an application fee ( which may cover the cost of a credit report and an appraisal), an origination fee, closing costs, insurance, and a monthly servicing fee. These charges can be paid by the reverse mortgage itself, making them no immediate burden to the borrowers; the costs are added to the principal and paid at the end, when the loan becomes due.

One of the real benefits of a reverse mortgage is that you can use the money you get from your home's equity (dependent upon final calculations) to pay for the various fees that are part of the loan costs overall. The costs are simple added to your loan balance, and you pay them back, plus interest, when the loan becomes due - that is when the last surviving borrower permanently moves our of the home or passes away.

All reverse mortgages have variable rates that are tied to a financial index and will vary according to market conditions.

TALC is short for "Total Annual Loan Cost." It combines all of the costs of a reverse mortgage into a single annual average rate and can be very useful when comparing one type of reverse mortgage to another.

Reverse mortgages vary considerably in features, benefits, and costs. It's not always easy to compare "apples to apples." If you are considering a reverse mortgage, be sure to ask the lender or counselor to explain the TALC rates for the various reverse mortgage products.

Because reverse mortgage mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.

If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as "liquid assets" if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.

Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely.

The funds from a reverse mortgage do not affect regular Social Security or Medicare benefits. You should discuss the impact of a reverse mortgage on federal, state or local assistance programs with a professional advisor, such as your local Area Agency on Aging (toll free 1-800-677-1116), an independent reverse mortgage consultant*, or tax attorney.

*A list of approved counseling agencies is posted on the Internet by the U.S. Department of Housing and Urban Development, at www.hud.gov

This is a federally mandated feature of the reverse mortgage process and is designed for your protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pro's and con's of all your reverse mortgage alternatives. He or she will discuss a reverse mortgage's cost and financial implications, should tell you about any government or nonprofit programs for which you may qualify, and advise you on any proprietary reverse mortgages that may be available in your area.