*Consult Tax Advisor. Not all products available in all states.
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.
- Cap on fees and expenses – the interest rate and all fees associated with reverse mortgages have caps on them to protect seniors.
- 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.
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:
- $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.
- $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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
No, actually there are three basic types of reverse mortgages:
- 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
- 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
- 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
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.
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.
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