What is a Reverse Mortgage?

A reverse mortgage is a special type of home loan that lets homeowners turn a portion of their home equity into cash.

Am I eligible for a reverse mortgage?

To qualify for a reverse mortgage, you must:

• Be at least 62 years old. In the case of a couple or co-owners, both must be 62 if their names appear on the title to the home.

• Be a homeowner with equity in your home. You may qualify even if you have an outstanding balance on your first mortgage. Single-family homes and qualified condominiums, townhouses, manufactured homes and 1–to–4 family owner-occupied residences are eligible. Reverse mortgages are available only for homes occupied by owners as a principle residence.

What if I already have a mortgage?

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. The proceeds from the reverse mortgage would first be used to pay off your existing mortgage, then any excess will be given to you. A reverse mortgage will allow you to stop making monthly payments.

How much money can I get?

This depends on a few factors, including your age, the value of your home, the amount of equity in your home, and interest rates at the time of origination. Other factors are the type of reverse mortgage product and particular payment option you select. A calculator that can help estimate how much you could receive under different products and payment options is available right on our website.

What are my payment options?

You decide how to receive the money generated by a reverse mortgage. Your payment options are:

• An upfront lump sum payment

• Line of credit

• Fixed monthly payments for a long as you remain in your home (or a predetermined, shorter period)

• A combination of monthly income and line of credit

Are payments taxable?

No. The income payments are not taxable because you are borrowing money. This is your money that you are getting tax free.

Who owns title to my home while my reverse mortgage is outstanding – the bank or me?

You retain title to your home during the period when you have a reverse mortgage, just the same as with a regular home mortgage.

Am I required to pay anything during the course of the reverse mortgage?

No. The flow of payments is reversed during the term of the reverse mortgage – the lender pays you. However, you are responsible for keeping up payments on your homeowner’s insurance and property taxes, and to maintain the condition of your home.

Are there any limits on how I can use the funds from a reverse mortgage?

No. Borrowers have used reverse mortgages for a variety of purposes, such as paying health care expenses, supplementing retirement income, financing home repairs or modifications, or visiting friends and family. Some have used a reverse mortgage to purchase recreation vehicles, start a small business and travel. Other have used reverse mortgages to eliminate expenses by paying off mortgages and credit card debt. The only limit on how you use a reverse is your imagination.

What is the interest rate on a reverse mortgage and how is it determined?

The interest rate varies by type of reverse mortgage.

• For the HECM, the most popular product, the interest rate is adjusted either monthly or annually (the borrower chooses) and is based on an index called the “London Interbank Offered Rate” (LIBOR), or an index the “1-Year Constant Maturity Treasury”, (CMT) index.

• The latest CMT rate is issued by the Federal Reserve Board and are published along with the LIBOR rate in financial newspapers. Interest charged on a reverse mortgage is “accrued”. That is, there is no payment of interest until the loan comes due.

How much will be owed when my reverse mortgage becomes due?
With a reverse mortgage, you are charged interest only on the proceeds that you receive.

• The amount owed to the lender typically includes the amount borrowed to date, the amount of accrued interest, accrued mortgage insurance premiums (for the HECM), servicing fees, and any other costs and fees financed as part of the loan amount.

• In no event will the repayment amount exceed the value of the home at the time the loan comes due.

• There are no prepayment penalties for the current reverse mortgage products.

What happens if I move out of my house after I get a reverse mortgage?

You may live outside your home for up to 12 consecutive months before the loan must be repaid. The reverse mortgage becomes due when the last remaining borrower ceases to occupy the home as a principal residence, whether they pass away, sell the home, or permanently move out.

What happens if a spouse dies?

As long as one person over 62 on the deed is living in the house as their primary residence, no payments are due. It is only when none of the borrowers are living or using the house as their primary residence that the loan becomes due.

What happens when my house gets passed to my heirs?

Once your home is passed to your heirs, the reverse mortgage comes due. Your heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, they get to keep any excess sales proceeds.

Why do I need counseling?

Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure the borrowers understand the program and review alternative options, before applying for a reverse mortgage.

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. You should contact the local Area Agency on Aging or a Medicaid expert.