When does a Reverse Mortgage make sense?

When does a Reverse Mortgage make sense?

Video Link on Reverse Mortgage From AARP

A reverse mortgage is a special type of home equity loan that allows you to receive cash against the value of your home without selling it. You can choose to receive a lump-sum payment, a monthly payment, or a line of credit.

You must use the funds you receive to pay off any existing mortgages or other debt against your home and to make required home repairs. There are no restrictions on how you use the remainder of the money. As long as you spend the payments you receive in the month that you receive them, the money is not taxable and does not count towards income or affect Social Security or Medicare benefits. It also does not count as income for Medicaid eligibility.

When you take out a reverse mortgage, you continue to live in the home and you retain title and ownership of it. You are also still responsible for taxes, hazard insurance, and home repairs. However, you do not have to repay the loan as long as you continue to live in the home. Instead, the amount you owe, based on loan payouts and interest on the loan, becomes due when you or the last borrower, usually the last remaining spouse, dies, sells, or permanently moves out of the home.

Reverse mortgages are available to homeowners age 62 and older. Unlike traditional mortgages, you do not have to provide an income or credit history to get the loan.

Reverse Mortgage Qualifications Typical reverse mortgage criteria include:
  • All borrowers must be 62 or older.
  • There is no health requirement; your health status is not a factor.
  • The home must be your primary residence.
  • You do not have to provide an income or credit history.
  • You must meet with an approved reverse mortgage counselor before you can start the loan process. These counselors can help you decide whether a reverse mortgage is right for you.
Things to think about:
  • You must use the funds you receive from the reverse mortgage to pay off any existing mortgage or other debt against the home and to make required home repairs. You can use any remaining funds for any purpose. You must have little or no outstanding balance on your current mortgage.
  • Once you have a reverse mortgage, it is very difficult to borrow any more against your home. But you can refinance a reverse mortgage if the house increases significantly in value.
  • If your heirs want to keep your home, they can repay the reverse mortgage. They can also keep the difference if the home’s sale price is greater than the reverse mortgage loan balance when they repay the loan.

Reverse Mortgages & LTC Costs

You can use the money you receive from your reverse mortgage to pay for in-home and community services and other expenses, such as home repairs and transportation, which can make it safer and more comfortable for you to live at home. Your long-term care expenses may be greater than the amount you can get in the reverse mortgage. You can also use the money to purchase long-term care insurance. It may be hard for a married couple to purchase long-term care insurance or pay for long-term care services for both spouses with the amount available from a reverse mortgage.

Types of Reverse Mortgages

There are three types of reverse mortgages. These include:

  • Home Equity Conversion Mortgage (HECM): The Department of Housing and Urban Development (HUD) offers HECMs and the Federal Housing Administration (FHA) insures them. HECMs are the most popular reverse mortgages, representing about 90 percent of the market. The federal government regulates most upfront costs for HECM loans. There are limits on the total fees and interest rates that you must pay.
    • Fannie Mae Home Keeper Loan: The loan limits for Fannie Mae Home Keeper Loan is higher than for HECMs. Therefore, you may receive more cash from these loans than with a HECM.
    • Financial Freedom Cash Account Loans: Financial Freedom Cash Account Loans are designed for seniors who own expensive homes.

    Most people get reverse mortgages through a mortgage lender. Some credit unions and banks, with state and local housing agencies, may offer these loans as well.