Questions and Answers

Can I do a Reverse Mortgage if I already have a mortgage on my home?
A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home.

*Consult Tax Advisor. Not all products available in all states.

How is the U.S. Government involved with reverse mortgages?

Because of the lobbying efforts of AARP in the 1980’s, the U.S. Government established the reverse mortgage program through HUD in 1989. It’s purpose was to provide a means for seniors to stay in their homes for the rest of their lives but obtain cash or income from the equity they built up in their home over the many years of making that monthly mortgage payment. The government did this for seniors because their earning capacity diminishes as they get older yet, due to rising medical costs as we age, expenses often go up.

Reverse Mortgages sponsored by HUD is the U.S. Government’s response to the plight many seniors faced with being “home rich” but “cash poor”. It should be noted that the absolute last thing the government wants is a seniors program that takes advantage of seniors. For that reason, the U.S. Government has put in two very important safeguards.

  1. Cap on fees and expenses – the interest rate and all fees associated with reverse mortgages have caps on them to protect seniors.
  2. Required counseling for suitability – HUD requires that anyone getting a reverse mortgage make sure it’s right for them by getting “counseling” from a non-profit, approved counseling agency.The counseling usually takes 45-60 minutes and the person is issued a counseling certificate.
Why is it better to do a reverse mortgage versus simply refinancing the house with a traditional mortgage?
With a reverse mortgage the senior doesn’t have to make monthly mortgage payments. With a traditional mortgage, monthly payments are required. Remember, with a reverse mortgage the principal and interest is not repaid until the borrower dies. If a married couple does a reverse mortgage, both must die ( or permanently move out of the house ) before the reverse mortgage must be repaid.
Could you give me an example of how a reverse mortgage works?

Through a U.S. Government program you can obtain a loan for approximately 45%-75% of the value of your home and you never have to repay the loan in your lifetime as long as you live in your home. The only requirement is that you must be 62 or older, own your own home, and prove the ability to keep the property taxes and homeowner’s insurance paid each year, and maintain the property.

Here’s an example: Let’s say you are 71 and own a house with a value of $180,000 with an existing mortgage of $23,000. That existing mortgage has payments of $600 a month. If you get a reverse mortgage, you would receive the following:

  1. $34,800 cash: You would receive up to about $34,800 in cash that would be paid to you after closing, and an approximate additional amount of $42,500 in a line of credit, available after the 1st year.
  2. $600 a month existing mortgage payment goes away: You no longer have to pay that $600 a month payment because the existing $23,000 mortgage is paid off when you get a reverse mortgage. This is accomplished by the U.S. Government program loaning you about 50% of the value of your home ($91,000) via a reverse mortgage. With the $91,000, you would then pay off the existing $23,000 mortgage on the house with the balance ( after closing costs ) going to you in cash. As to repayment of the reverse mortgage loan, no repayment is required during your life time as long as you continue to live in your home. Upon your death, the reverse mortgage ( principal and interest) must be paid by your estate, usually by selling the home.You get cash today and don’t have to repay that cash in your lifetime. That’s what makes a reverse mortgage so unique.Further, you retain 100% ownership in the home and you and your heirs get all the future appreciation in value of your home.
Are fixed rate loans available?
There are fixed rate as well as adjustable rate reverse mortgages. Normally interest rates on reverse mortgages are lower than conventional home mortgage rates and equity loan rates because they are government insured loans.
Will I have to pay any fees out of pocket to obtain a reverse mortgage?

There are fees to get a reverse mortgage and they will be added to your loan balance, so that you do not have to pay them at closing. On average, these fees that are added to the loan run $6,000 – $10,000 and can be more for higher value houses.

The homeowners are required to obtain HUD counseling in order to apply for a Reverse Mortgage loan, which costs between $125-135, paid directly to the counseling agency.

At the time of application a deposit for the appraisal will paid by the homeowner which can be from $500-750. If the loan is closed the deposit is refunded, but if the loan does not close for any reason the deposit will be used to pay for the appraisal.

Are the Closing Costs and Fees in a reverse mortgage high?
They used to be high. But in early 2010 the fees were greatly reduced due to the fact that the lenders have agreed to pay either the origination fee or the mortgage insurance for the borrower. Additionally, lenders eliminated the monthly service fee. For these reasons, the cost of reverse mortgages have been greatly reduced, on average by about $8,000
Are there any restrictions on the use of the money I will receive?
It is your money and how you spend it is completely up to you!
Will I have to sell or vacate my home if the money I owed on the loan exceeds the value of my home?
Absolutely not! As long as you continue to live in your home as your primary residence, you will never be asked to sell or move out of your home.
Will my heirs owe anything to the mortgage lender?

Your heirs may either repay the full loan and keep the house in the family or sell the property at its “fair market value”.

No additional financial claims may be made against your heirs or estate because the reverse mortgage loan is non-recourse, which means that if the loan amount is greater than the home’s value upon the sale of the property, any outstanding debt balance will be forgiven.

If my home’s value appreciates during the mortgage term of a reverse mortgage, who will be entitled to that money?
Under the terms of the reverse mortgage, you are legally required to pay back only the outstanding balance of your loan. You or your heirs are entitled to any and all appreciation in the value of your home that exceeds the loan balance.
How much can I borrow?

The maximum amount that can be borrowed is based on a HUD formula that factors in the age of the youngest borrower, the average expected interest rate, the anticipated rate of your home’s appreciation, and the current value of your home within the FHA insured limits for your area.

Upon request, a summary is available for your home and the amount of payment you’re now entitled to. Typically a person can borrow about, for general purposes, 50%-75% of the value of their home. For a person 70 years old, they can receive about 50% of the value of the house. If you are older than 70, you can receive a higher percentage. If younger, a slightly lower percentage.

Will reverse mortgage payments affect my Social Security or Medicare benefits?
Monies received will not affect eligibility for retirement, survivor, disability, or Medicare benefits payable under the Social Security Act. For means based programs like Medicaid, a reverse mortgage can effect one’s qualifications for such programs.
What if I decide to sell my home?
If you choose to sell your home, the outstanding reverse mortgage loan balance will have to be paid at closing. You or your estate will receive any proceeds exceeding the loan balance.
What appreciation or rise in my home’s value should I conservatively anticipate over the years of a reverse mortgage?
HUD and FHA formula has historically been about 4% each year. It should be noted that approximately the first 3%-4% of appreciation in your house each year will cover the interest being added to your loan by the reverse mortgage.
How safe and secure are reverse mortgages?
Reverse mortgages are insured by the U.S. Government through HUD The fees and expenses that can be charged on a reverse mortgage are tightly regulated by HUD in order to protect the senior.
Will a reverse mortgage hurt my heirs or children; “I always wanted the house left for their benefit”?

Often heirs and children want the senior citizen to have the best quality of life available. Heirs and children will still benefit from the remaining home equity, future home equity, and the rise in the value of your home.

Most seniors don’t want to be a burden to their children or heirs; a reverse mortgage gives financial independence and control to the senior. The heir or children of the senior continues to be the best referral of a Reverse Mortgage Program.

How long does the reverse mortgage process take? When should I receive my money?
Normally it takes 45 to 90 days. It can be longer if there are titles issues or unusual circumstances.
Why should I trust Your company, Reverse Mortgage of West Texas?

Texas Reverse Mortgage, dba ReversePRO is an Approved Direct Lender by Fannie Mae and HUD and is one of the leading companies in the reverse mortgage industry in Texas. The reverse mortgage process is a standard process throughout the country.

The principal of our company is from a financial planning and wealth management background, and he has been assisting homeowners with Reverse Mortgages for 15 years. He prides himself in helping the homeowners determine if a Reverse Mortgage is the best solution.

Who is eligible for a reverse mortgage?
The only requirement is that the homeowner is 62 or older and can prove the ability to pay the property taxes and homeowner’s insurance on time each year and maintain the property. Regarding the home itself, the only requirement is that existing mortgages ( if any ) cannot exceed about 50%-65% of the value of the home, the home meets FHA standards, and the title of the home is in the name of the person who lives there.
What is a reverse mortgage?

A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home.

*Consult Tax Advisor. Not all products available in all states.

How is a reverse mortgage like a home equity loan? How is it different?

Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash.

They differ in that with a home equity loan you must make regularly monthly payments of principal and interest. However, with a reverse mortgage you do not make any monthly payments for as long as you stay in the home.

Can my current income influences my ability to get a reverse mortgage?
We will give the homeowner a list of items, such as tax returns, W-2’s, etc. to prove the ability to continue to pay the property taxes and homeowner’s insurance on time each year, and to be able to maintain the home.
What are the advantages of a reverse mortgage?

There are many. Here are a few of the most significant:

  • Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership
  • Stay in your home. It allows you to remain in your home and retain home ownership.
  • No monthly mortgage payments. You need to pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
  • Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax-free* and will not affect your Social Security or Medicare benefits.
  • Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.

*Consult Tax Advisor

I’ve heard that with a reverse mortgage the lender would own my home. Is this true?

It’s absolutely false. The borrower retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.

Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses – just as they would with a standard first mortgage or home equity loan.

Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?
Yes. Refinancing can make sense if your home increases in value or interest rates drop.
Is it possible for my loan balance to become greater than the value of my home?
No. You can never owe more than what your home is worth. What’s more, since the reverse mortgage is what is known as a “non-recourse” loan, the lender cannot seek repayment from your income, your other assets, or your estate. In other words, the house stands for the debt.
Can a reverse mortgage lender take my home away if I outlive the loan?
No they cannot. And the loan is not due at the time either. In fact, you don’t need to repay the loan as long as you or another borrower continues to live in the house and keep the taxes paid and insurance in force.
How do you determine the amount of cash I am eligible for?
The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, and the appraised value of your home and FHA’s lending limits for your area. In most cases the older you are, the more valuable your home, and the less you owe on it, the more money you can get.
Are there any limits on how I use the money I receive from a reverse mortgage?
You can use the money for anything you choose, from daily living expenses, home improvements, healthcare expenses, paying off existing debts, or simply enhancing your retirement years. For many people, the money provides a “financial security blanket,” in case unexpected expenses arise.
Is there a choice in how I receive the cash from my reverse mortgage?

Most definitely. With most reverse mortgages you have a wide range of payment options, one of which should be ideal to meet your financial needs.

  • You can choose to receive the money in a lump sum, approximately 60% of available funds just after closing, the balance one year later, or
  • You can receive equal monthly payments as long as one of the borrowers lives and continues to occupy the property as a principal residence, or
  • You can choose to receive equal monthly payments for a fixed period of months, or
  • You can get a line of credit, which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.
  • You can opt for a combination of line of credit with monthly payments for as long as the borrower remains in the house.
    • Who can quality for a reverse mortgage?
    • Seniors 62 years of age or older quality
    • They must prove their ability to pay the property taxes and homeowner’s insurance on time each year
    • They must prove their ability to keep the home maintained as long as they live in the home.
Who can quality for a reverse mortgage?
Seniors 62 years of age or older quality. There are no income, health or credit qualifications.
I still owe money on a first or second mortgage. Can I still get a reverse mortgage?
Yes. You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage. The funds you would receive in the reverse mortgage would be used to pay off whatever existing mortgages you have on the property.
Can I get a rverse mortgage on a second home or resort property I own?
Unfortunately, no. Reverse mortgages may only be taken out on your primary residence.
What kinds of homes are eligible for a reverse mortgage?
First and foremost, the reverse mortgage must be on the borrower(s) primary residence, that is, where they live most of the year. Most reverse mortgages are taken on single family, one-unit homes. Some programs grant reverse mortgages on condominiums or duplexes. Mobile homes and cooperatives are generally not eligible for a reverse mortgage.
Would a home that is in a “living trust” be eligible for a reverse mortgage?
In most cases a homeowner who has put his or her home in a living trust can usually take out a reverse mortgage. A review of the trust documents would be made by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.
Are all reverse mortgages the same?

No, actually there are three basic types of reverse mortgages:

  1. Federally-insured reverse mortgages. Known as Home Equity Conversion Mortgages (HECM), they are insured by the U.S. Department of Housing and Urban Development (HUD). They are widely available, have no income requirements, and can be used for any purpose. (For more on HECM reverse mortgages, go to: http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm
  2. Government-sponsored reverse mortgages. A “Home Keeper” is Fannie Mae’s conventional market alternative to the Home Equity Conversion Mortgage (HECM). It is government-sponsored enterprise program and works like a HECM loan in many ways. However, a “Home Keeper” reverse mortgage addresses a few needs that are not met by HECM loans, such as individuals with higher property values, condominium owners, and seniors wishing to use a reverse mortgage to purchase a new home. (For more on Fannie Mae “Home Keeper” reverse mortgages, go to:http://www.financialfreedom.com/ReverseMortgage/Products/#FMHK
  3. Proprietary reverse mortgages. These are private loans with unique features that appeal to certain kinds of borrowers. An example of such reverse mortgages, which are backed by the companies that develop them, is Financial Freedom’s Cash Account Plan. (For more on Cash Account Plan reverse mortgages, go to: http://www.financialfreedom.com/ReverseMortgage/Products/#FF_CASH_ACCOUNT
When will I have to pay the principal and interest costs of this loan?
Your reverse mortgage loan becomes due and must be paid in full when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems.
What has to be paid when the loan becomes due?
When the last surviving borrower permanently moves out of the home or dies, the revers mortgages loan becomes due. The reverse mortgage principal, interest charges, and service fees ( such as closing cost fees) are paid from the sale of the house or assets of the estate.
If I take a reverse mortgage, will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs. Its important to remember that you can never owe more than the home’s appraised value when it is sold. None of your other assets will be affected be your reverse mortgage loan.
Must the heir or the last surviving borrower sell the property to repay the reverse mortgage loan?
No. Repayment may be accomplished by refinancing the reverse mortgage with a traditional “forward” mortgage loan, or though the use of other assets.
Other than repaying the principal and interest, what kinds of fees are involved in a reverse mortgage?
Most reverse mortgages have an application fee ( which may cover the cost of a credit report and an appraisal), an origination fee, closing costs, insurance, and a monthly servicing fee. These charges can be paid by the reverse mortgage itself, making them no immediate burden to the borrowers; the costs are added to the principal and paid at the end, when the loan becomes due.
How much cash will I have to come up with to cover origination fees and other closing costs?
One of the real benefits of a reverse mortgage is that you can use the money you get from your home’s equity (dependent upon final calculations) to pay for the various fees that are part of the loan costs overall. The costs are simple added to your loan balance, and you pay them back, plus interest, when the loan becomes due – that is when the last surviving borrower permanently moves our of the home or passes away.
Are reverse mortgage interest rates fixed or variable?
All reverse mortgages have variable rates that are tied to a financial index and will vary according to market conditions.
What is “TALC” and why should I know about it?

TALC is short for “Total Annual Loan Cost.” It combines all of the costs of a reverse mortgage into a single annual average rate and can be very useful when comparing one type of reverse mortgage to another.

Reverse mortgages vary considerably in features, benefits, and costs. It’s not always easy to compare “apples to apples.” If you are considering a reverse mortgage, be sure to ask the lender or counselor to explain the TALC rates for the various reverse mortgage products.

What are the tax consequences of a reverse mortgage? What about my Social Security and Medicare benefits?

Because reverse mortgage mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.

If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as “liquid assets” if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.

Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely.

If I take on a reverse mortgage, how will it affect my government benefits?

The funds from a reverse mortgage do not affect regular Social Security or Medicare benefits. You should discuss the impact of a reverse mortgage on federal, state or local assistance programs with a professional advisor, such as your local Area Agency on Aging (toll free 1-800-677-1116), an independent reverse mortgage consultant*, or tax attorney.

*A list of approved counseling agencies is posted on the Internet by the U.S. Department of Housing and Urban Development, at www.hud.gov

I understand that I must meet with an unbiased counselor before completing my reverse mortgage application. What does that accomplish?
This is a federally mandated feature of the reverse mortgage process and is designed for your protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pro’s and con’s of all your reverse mortgage alternatives. He or she will discuss a reverse mortgage’s cost and financial implications, should tell you about any government or nonprofit programs for which you may qualify, and advise you on any proprietary reverse mortgages that may be available in your area.