Q: How does a reverse mortgage work?
In a “regular” mortgage, you make monthly payments to the lender. In a Home Equity Conversion Mortgages (HECM), you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a Home Equity Conversion Mortgage (HECM) generally are tax-free, and many Home Equity Conversion Mortgages (HECMs) have no income restrictions.
Q: How do I qualify for a HECM?
If you’re 62 or older – and looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, or pay for healthcare expenses – you may be considering a Home Equity Conversion Mortgages (HECMs). It’s a product that allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.
Q: What are the advantages of a HECM Reverse Mortgage?
HECM loan advances are not taxable, and generally don’t affect your Social Security or Medicare benefits.
You retain the title to your home, and you don’t have to make monthly repayments.
The loan does not need to be repaid until the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence.
In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12consecutive months before the loan must be repaid.
Q: How Much Can I borrow?
How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, and current interest rates. In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get.
Q: What are the HECM Interest Rates?
Although some reverse mortgages have fixed rates, most have variable rates that are tied to a financial index: they are likely to change with market conditions.
Q: What is FHA?
FHA stands for Federal Housing Administration. It is the Federal Agency that regulates reverse mortgages and sets guidelines for HECM loans.
Q: Is there a fee?
Yes – Lenders generally charge an origination fee, a mortgage insurance premium (for federally-insured HECMs), and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender sometimes sets these fees and costs, although origination fees for HECM reverse mortgages currently are dictated by law. Your upfront costs can be lowered if you borrow a smaller amount through a reverse mortgage product called a “HECM Saver.”
Q: Will the loan Balance increase?
Yes – The amount you owe on a reverse mortgage grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases as the loan funds are advanced to you and interest on the loan accrues.
Q: Will any shortfall have to be repaid upon termination of the loan?
Not in most cases- Reverse mortgages can use up all or some of the equity in your home, and leave fewer assets for you and your heirs. Most reverse mortgages have a “nonrecourse” clause, which prevents you or your estate from owing more than the value of your home when the loan becomes due and the home is sold. However, if you or your heirs want to retain ownership of the home, you usually must repay the loan in full – even if the loan balance is greater than the value of the home.
Q: Are there any monthly or annual expenses to pay?
Yes – Because you retain title to your home, you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don’t pay property taxes, carry homeowner’s insurance, or maintain the condition of your home, your loan may become due and payable.
Q: Is the Interest on reverse mortgages deductible on income tax returns?
No – Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.