The Real Question: Is a Reverse Mortgage Right For You?
A Reverse Mortgage isn't for everyone. But for many seniors they're a perfect fit. The following questions can help you ascertain if a Reverse Mortgage is for you:
Do you have equity built up in your home?
Are you looking to stay in your home for the foreseeable future?
Would extra money enable you to do the things you've been wanting to do?
If you answered "Yes" to the above questions perhaps a Reverse Mortgage might be an option worth your consideration. One of the common worries about Reverse Mortgages is concern for your heirs. Discuss Reverse Mortgages with your family and trusted advisors. Perhaps there are other options that will work better than a Reverse Mortgage.
Who Insures Reverse Mortgages? The FHA (Federal Housing Administration) insures Reverse Mortgages. The FHA HECM, Home Equity Conversion Mortgage, is administered through the United States Department of Housing and Urban Development (HUD). The line of credit option, a feature of the Adjustable Rate HECM, accounts for approximately 60% of all Reverse Mortgages.
What types of homes qualify for a Reverse Mortgage? Single Family homes, 2-4 unit dwellings, townhouses, detached homes, condominiums, and most manufactured homes are eligible for Reverse Mortgages. (Condominiums must be FHA approved.) (Co-ops are not currently approved for Reverse Mortgages. Mobile homes are also not eligible for a Reverse Mortgage.)
Are there any restrictions on the use of funds with a Reverse Mortgage?
No. You can use the proceeds of a Reverse Mortgage any way you like. Help a family member, travel, pay bills, fix up the house, or pay off your mortgage.
If I choose a line of credit, does the bank pay me interest on the unused portion?
No. The lender does not pay interest on a Reverse Mortgage. However, the lender provides a Credit Line Growth rate (a percentage) on your unused line of credit. With the FHA Monthly Adjustable you receive a growth rate of 0.5% (1/2 %) over the current interest rate that accrues on your loan. For example, if one month your applied interest is 4.5%, then your credit line growth rate would be 5% and your credit line would increase. This is why a Reverse Mortgage has a huge advantage over a Home Equity Loan (HELOC).
Would a "Living Trust" be eligible for a Reverse Mortgage? What about a Life Estate?
A homeowner who has put his or her home into a revocable living trust can take out a Reverse Mortgage. A Life Estate is acceptable for Reverse Mortgages as well as Power of Attorney and Guardianship. The Reverse Mortgage Lender must review these documents as part of the loan process and in some cases will even approve irrevocable trusts.
How many times can I refinance my Reverse Mortgage? As many times as there is sufficient equity.
You Remain on Title - The lender does NOT own your home. Just as with any mortgage on your home, you retain title as the owner, not the bank.
Reverse Mortgages and Equity Loans - Similar, But Different - Although a Reverse Mortgage is a lot like an Equity Loan, there are some significant differences. (a) With a Reverse Mortgage your credit rating is not a determining factor. (b) Unlike an equity loan you make no monthly mortgage payments. (c) With an Equity loan you would have to refinance to increase your line of credit. With a Reverse Mortgage your unused line of credit increases year after year giving you access to more funds without the need to refinance.
If I decide to do a Reverse Mortgage will there be an inspection of my home?
Yes, there will be an inspection of your home (known as an appraisal). Your home, inside and out, will be evaluated to determine its value. (Click for more info.)
Can my plan be changed during the Reverse Mortgage?
Yes. You can change from a line of credit to monthly payments or vice versa at any point in your Reverse Mortgage. You will have to sign forms changing the structure of your plan, but it can be accomplished. After all, it's your money to structure for your needs.
How long does it take to close a Reverse Mortgage?
It generally takes 30-45 days to close a Reverse Mortgage. It can take more or less time. Any application with special circumstances involves more care and can take longer.
What happens at the closing?
Mortgage documents are signed at the closing. You receive your proceeds after a three day right to cancel period (known as the right of rescission period).
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What if I owe more than my home is worth when I sell? A Reverse Mortgage is a "non-recourse" loan which means the house stands for the debt. You can never owe more than your home is worth upon the sale of the property even if your home's value is less than what is owed the lender. Mortgage insurance, required by the FHA, protects borrowers from owing more than the value of the home. (Click here for FAQ page.)
When is the Reverse Mortgage repaid? Repayment occurs when your home is no longer your primary residence or when the loan is refinanced.