These are some of the most frequently asked questions about reverse mortgages.
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- Types of Reverse Mortgages
- Most commonly used
- Why get one?
- Payout options
- Are you eligible if you have a mortgage balance?
- Are you eligible if your home is paid off?
- Avoid scams
- How much can you get?
- Can you lose your home?
- Who owns your home?
- What are the interest rates?
- How much does it cost?
- Will your heirs receive an inheritance?
- Can you make a payment?
- When is it due?
- What if you don’t want the full amount?
- What if interest exceeds the value of the home?
- Are proceeds taxed
- What are lender expectations
- Are there any payments to make?
- Do banks do reverse mortgages?
- Can a family member take over?
- If you inherited the home?
- Can you rent it?
- Is the interest tax deductible?
- Are condos eligible?
- Can you get more than one?
- Can it be modified?
- Can you negotiate?
- Can it be converted to a conventional mortgage?
- What happens if you run out of equity?
- How do you pay it back?
- Is there a minimum credit score?
- Why are there insurance premiums?
Types of reverse mortgages
There are three common types of reverse mortgage loans.
Home Equity Conversion Mortgage (HECM) – This type of mortgage for homeowners 62+ is insured by the Federal Housing Administration (FHA) and can eliminate monthly payments. Learn More
Reverse Mortgage for Purchase – This type of mortgage allows homeowners 62+ to purchase a home using reverse mortgage proceeds. Learn more
Proprietary Reverse Mortgage – This type of mortgage is for homeowners 62+ (or age 55+ in some states) with higher-valued homes at more than the FHA lending limit. Learn more
What is the most commonly used reverse mortgage?
A home equity conversion mortgage (HECM) is the most common type of reverse mortgage. There are no monthly mortgage payments required with a HECM.
Why would someone use a reverse mortgage?
You can use the proceeds for any purpose.
Some common reasons people use them include:
- To supplement retirement income
- To pay for medical expenses
- To fund long-term care expenses
- To fund home improvements
- To pay off a traditional mortgage or other debts
How do you receive reverse mortgage proceeds?
You can choose how you’d like to receive your loan proceeds, including:
- As a lump sum
- As fixed monthly payments
- As a line of credit that you can access when needed or
- A combination of all three.
Can you get a reverse mortgage if you don’t owe anything on your house?
Yes, you can be eligible for a reverse mortgage even if you have paid off your home. The amount of money you can borrow is based on several factors, including your age, the value of your home and the interest rate.
Can you get a reverse mortgage if you owe money on your house?
Yes, you can be eligible for a reverse mortgage even if you owe money on your house. You must have about 50 percent equity in your home to be eligible.
To get a rough estimate of how much equity you have, subtract any outstanding loan balances from the current appraised value or sale price of your home.
Home Value: $400,000
Loan Balance: $100,000
Home Equity: 300,000
Avoiding reverse mortgage scams
To avoid scams seniors should:
First, contact a reputable and dedicated lender.
Second, always consult with a HUD-approved counselor to get unbiased feedback regarding your situation.
Third, beware of anyone who tries to sell you a reverse mortgage without first using a HUD-approved counseling agency and offering a financial assessment.
Fourth, never sign any documents without first reading and understanding them.
Lastly, if you have any questions or concerns, be sure to contact the Housing and Urban Development (HUD) Office of Inspector General.
How much money can you get from a reverse mortgage?
The amount of money you can borrow depends on how much home equity you have in the home. You typically cannot use more than 50% of your home’s equity based on it’s appraised value. As of 2022, the FHA lending limit for HECM loans is $970,800. Proprietary reverse mortgages allow for homes valued up to $10 million with loan amounts up to $4 million.
Can you lose your house with a reverse mortgage?
With a reverse mortgage, you must continue to pay your property taxes and homeowners insurance and keep up with the home maintenance. If you don’t, the reverse mortgage lenders could call the loan due. Learn more
Who owns the home in a reverse mortgage?
The borrower retains the title and maintains ownership of the home.
What are the interest rates on a reverse mortgage?
Current prevailing interest rates on HECM loans as of September 2022 are around 6%. Proprietary loan interest rates tend to run 1-2% higher. Both HECM and proprietary loans offer fixed and variable rate options.
How much does a reverse mortgage cost?
The cost will vary based on the type of loan, the lender, and the borrower’s individual circumstances. Typically, you will need to cover closing costs, applicable servicing fees and interest charges. In some cases, these costs may be rolled into the loan balance eliminating out-of-pocket expenses.
Will my heirs still receive an inheritance?
Yes, your heirs can still receive an inheritance after you take out a reverse mortgage. Once the home is sold and the loan balance is paid off, any remaining equity will go to your heirs.
Reverse mortgage requirements
Reverse mortgage requirements include:
- The borrower must be 55 years of age or older
- The borrower must own a home
- The home must be their primary residence
- The home must have sufficient equity (roughly 50%)
- The borrower is responsible for paying property taxes, insurance and maintenance costs.
Can I make a payment on a reverse mortgage?
Yes, you can make payments, but it is not required if you choose to defer payment until the loan becomes due. The amount you pay and when you make payments will be based on the terms of your loan agreement.
When is a reverse mortgage due?
Reverse mortgage loans are due when the last surviving borrower dies, sells the home, or moves out of the home for an extended period of time. At that point, the loan balance must be repaid.
What if I don’t want to take the full amount that I qualify for?
You do not have to take the full amount that you qualify for. The loan can be tailored to meet your individual needs and goals. You can choose how much you want to borrow and you can make payments on the loan if you choose.
What happens if the interest accrued exceeds the value of our home?
If the interest accrues to the point where it exceeds the value of your home, you or your heirs will not be responsible for paying the difference. Reverse mortgages are non-recourse loans, which means that you or your heirs will never owe more than the value of your home.
Will I pay taxes on these proceeds?
Loan proceeds are considered loan advances and not income, so they will not be taxed.
What does the lender expect from me?
The lender will expect the reverse mortgage borrower to maintain the property, pay property taxes and mortgage insurance premiums, and stay current on any other loans or obligations that are secured by the home.
Do reverse mortgages have monthly payments?
Reverse mortgages are flexible and can be structured to meet your individual needs. You are not required to make monthly payments on the loan, but you can if you choose. If you do not make monthly payments, the interest on the loan will accrue and be added to the loan balance.
Do any banks do reverse mortgages?
Yes, there are some banks that offer reverse mortgages but for the most part, these loans are offered by mortgage lenders and brokers. The terms and conditions of these loans can vary greatly from one lender to the next. It’s important to shop around and compare several different lenders before deciding on a loan.
A dedicated reverse mortgage lender is recommended.
Can a family member take over a reverse mortgage?
A family member cannot take over a reverse mortgage if the borrower dies or moves out of the home. The family member must apply, meet all of the requirements, and can live in the home with the new reverse mortgage under their name.
What happens if you inherit a house with a reverse mortgage?
If you inherit a house with a reverse mortgage, you have two options:
- Sell the house and use the proceeds from the sale to pay back the loan. You get to keep any additional proceeds from the sale.
- Pay off the loan balance and keep the property. You can do this by refinancing the mortgage, or using your own personal funds.
Can you rent your house if you have a reverse mortgage loan?
No, you cannot rent your house if you have a HECM loan. The property must be owner-occupied as the principal residence. Renting the home will violate the loan terms and can result in the loan being called due.
Is interest on a reverse mortgage tax deductible?
Some mortgage interest may be tax deductible. Consult with a tax adviser to discuss your specific situation.
Can you get a reverse mortgage on a condo?
Yes, you can get a reverse mortgage on a condo as long as the property meets all of the FHA’s requirements and is your principal residence. Some proprietary reverse mortgage loans do not require FHA approval on condominiums.
Can you get more than one reverse mortgage?
A borrower can only have one reverse loan at a time, even if you have multiple properties. If a borrower has paid off a previous reverse mortgage debt, then they may be eligible for another loan.
Can you modify a reverse mortgage?
Borrowers are allowed to modify their reverse mortgage loan. They can refinance the loan or change the terms of the loan without penalty.
Can I negotiate my reverse mortgage?
Yes, lenders are willing to negotiate the terms of the loan or a deed in lieu of foreclosure. Borrowers should consult with a lawyer before entering into any negotiations.
Can you convert a reverse mortgage into a conventional mortgage?
Yes, borrowers can refinance their reverse mortgage loan into a conventional mortgage. However, the borrower will have to qualify for the new loan based on their current income and credit history.
What happens when you run out of equity in a reverse mortgage?
Reverse mortgages are non-recourse loans. If you run out of equity in your home, you or your heirs will not be personally liable for any debt related to the reverse mortgage if in the event there is no equity left at the time of sale.
How do you pay back a reverse mortgage?
You can pay back the loan by selling the property, refinancing the loan, making payments on the loan balance, or deferring payment until the loan becomes due. They can be structured to meet your individual needs.
What is the minimum credit score for a reverse mortgage?
There are no minimum credit score requirements for a HECM reverse mortgage. Most proprietary loan options do have minimum credit score requirements. These vary by lender and range between 550 and 620 depending on which program is chosen. The borrower’s credit history and income will be reviewed as part of the loan application process.
Why is there a Mortgage Insurance Premium with my HECM?
Mortgage insurance premiums are to protect the lender and borrower in the event that the home’s value decreases or the borrower default on the loan. Under the HECM program, a fee is charged to borrowers that are equal to a small percentage of the maximum claim amount, plus an annual premium thereafter on the loan balance. The MIP guarantees that if the lender goes out of business, FHA will step in and ensure the borrower has continued access to his or her loan funds. The MIP further guarantees that when the property is sold to pay back the reverse mortgage, the borrower will never owe more than the value of the home.