| About Reverse Mortgages
A reverse mortgage enables older homeowners (62+) to convert part of the
equity in their homes into tax-free cash without having to sell the home,
give up title, or take on a new monthly mortgage payment. The reverse
mortgage is aptly named because the payment stream is "reversed." Instead of
making monthly payments to a lender, as with a regular mortgage, a lender
makes payments to you. Below are some common questions asked by consumers
about reverse mortgages. Please call us (410-266-2544)and ask to speak to
Mr. Fox at extension 36, one of our managers that has many years of
experience with Reverse Mortgages. We will help you navigate the waters and
discuss your personal situation.
How Much Money Can I Get?
The amount of funds you are eligible to receive depends on your age (or the
age of the youngest spouse in the case of couples), the appraised home
value, interest rates, and in the case of the government program, the
lending limit in your area. In general, the older you are and the more
valuable your home (and the less you owe on your home), the more money you
can get.
Does My Home Qualify?
Eligible property types include single-family homes, 2-4 unit properties,
manufactured homes (built after June 1976), condominiums, and townhouses. In
general, cooperative housing is ineligible. However, some lenders have
developed private programs that lend on co-ops in New York.
What are My Payment Plan Options?
You can choose to receive the money from a reverse mortgage all at once as a
lump sum, fixed monthly payments either for a set term or for as long as you
live in the home, as a line of credit, or a combination of these. The most
popular option - chosen by more than 60 percent of borrowers - is the line
of credit, which allows you to draw on the loan proceeds at any time. To
learn more, click here.
My Understanding is that the Unused Balance in the Line of Credit Option Has
a Growth Feature. Does that Mean I'm Earning Interest?
No, you're not earning interest like you do with a savings account. The
growth factor, which is equal to roughly the interest that you're being
charged, takes into consideration that your home has appreciated in value
over the past 12 months and that you are one year older.
How Can I Use the Proceeds from a Reverse Mortgage?
The proceeds from a reverse mortgage can be used for anything, whether its
to supplement retirement income to cover daily living expenses, repair or
modify your home (i.e., widening halls or installing a ramp), pay for health
care, pay off existing debts, buy a new car or take a "dream" vacation,
cover property taxes, and prevent foreclosure.
How Does the Interest Work on a Reverse Mortgage?
With a reverse mortgage, you are charged interest only on the proceeds that
you receive. Most reverse mortgages charge a variable interest rate
(although fixed rate products are entering the marketplace) that is tied to
an index, such as the 1-Yr. Treasury Bill or the London Interbank Offered
Rate (LIBOR), plus a margin that typically adds an additional one to three
percentage points onto the rate you're charged. Interest is not paid out of
your available loan proceeds, but instead compounds over the life of the
loan until repayment occurs.
Are There Any Special Requirements to Get a Reverse Mortgage?
As long as you own a home, are at least 62, and have enough equity in your
home, you can get a reverse mortgage. There are no special income or medical
requirements.
What If I Have An Existing Mortgage?
You may qualify for a reverse mortgage even if you still owe money on an
existing mortgage. However, the reverse mortgage must be in a first lien
position, so any existing indebtedness must be paid off. You can pay off the
existing mortgage with a reverse mortgage, money from your savings, or
assistance from a family member or friend.
For example, let's say you owe $100,000 on an existing mortgage. Based on
your age, home value, and interest rates, you qualify for $125,000 under the
reverse mortgage program. Under this scenario, you will be able to pay off
ALL the existing mortgage and still have $25,000 left over to use as you
wish.
If, however, you only qualify for $85,000, then you would need to come up
with $15,000 from your own savings to get the reverse mortgage. Even then,
all the money from the reverse mortgage will have been used to pay off the
existing mortgage. On the other hand, you won't have a monthly mortgage
payment anymore.
If you find yourself in a deficit situation where you don't have enough
money to pay off the existing mortgage, you may use funds from a grant or
gift from a family member or friend to cover the gap, but you cannot incur a
new debt obligation (i.e., loan).
What Is the Service Fee Set-Aside?
Under the FHA HECM program, you are charged a monthly servicing fee that
ranges from $30-$35 to manage your account once the loan closes. The SFSA is
an estimate of what the total servicing fees will be over the life of the
loan, by multplying your life expectancy (converted from years into months)
multiplied by either $30 or $35.
Although it's not considered a closing cost, the SFSA can equal several
thousand dollars, which is deducted from your available loan proceeds. You
do not have access to that money, nor do you earn interest.
Will I Lose My Government Assistance If I Get a Reverse Mortgage?
A reverse mortgage does not affect regular Social Security or Medicare
benefits. However, if you are on Medicaid, any reverse mortgage proceeds
that you receive must be used immediately. Funds that you retain would count
as an asset and could impact Medicaid eligibility. For example, if you
receive $4,000 in a lump sum for home repairs and spend it all the same
calendar month, everything is fine. Any residual funds remaining in your
bank account the following month would count as an asset. If the total
liquid resources (including other bank funds and savings bonds) exceed
$2,000 for an individual or $3,000 for a couple, you would be ineligible for
Medicaid. To be safe, you should contact the local
Area Agency on Aging or a Medicaid expert.
Why Do I Need to Get Counseling?
Counseling is one of the most important consumer protections built into the
program. It requires an independent third-party to make sure you understand
the program, and review alternative options, before you apply for a reverse
mortgage.
You can seek counseling from a local HUD-approved counseling agency, or a
national counseling agency, such as National Foundation for Credit
Counseling (866-698-6322), Money Management International (877-908-2227),
Consumer Credit Counseling Service of Greater Atlanta (866-616-3716) and
National Council on Aging (800-510-0301). Counseling is required for all
reverse mortgages and may be conducted face-to-face or by telephone.
By law, a counselor must review (i) options, other than a reverse mortgage,
that are available to the prospective borrower, including housing, social
services, health and financial alternatives; (ii) other home equity
conversion options that are or may become available to the prospective
borrower, such as property tax deferral programs; (iii) the financial
implications of entering into a reverse mortgage; and, (iv) the tax
consequences affecting the prospective borrower's eligibility under state or
federal programs and the impact on the estate or his or her heirs.
When Do I Pay Back My Loan?
No monthly payments are due on a reverse mortgage while it is outstanding.
The loan is repaid when you cease to occupy your home as a principal
residence, whether you (the last remaining spouse, in cases of couples) pass
away, sell the home,
|
