 Reverse Mortgage Resources
AARP
National Reverse Mortgage Lenders Association
HUD
National Council on Aging
Federal Trade Commission
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About Reverse MortgagesIn today's economic environment, we understand you are wading into uncharted territory, facing challenges and financial issues never before encountered. And like most, when helping clients plan for retirement, you realize the traditional sources of retirement income may need some extra support. Below are some frequently asked questions about reverse mortgages. Overview Benefits Reverse Mortgage Proceeds Loan Repayment Overview What is a reverse mortgage? A reverse mortgage is a loan that allows homeowners age 62 and older to convert a portion of the equity in their home into tax-free cash. Reverse mortgages offered by Genworth Financial Home Equity Access, Inc. (GFHEA) are insured and guaranteed by the Federal Housing Administration (FHA). What is the difference between a reverse mortgage and a home equity loan? In a traditional mortgage or a home equity line of credit (HELOC), the borrower must meet minimum income and credit requirements to qualify for the loan and make monthly loan payments. With a reverse mortgage, there are no credit score and generally no income requir,ements, nor does the borrower have to make monthly loan payments. Additionally, there is no pre-payment penalty with a reverse mortgage loan so the borrower can choose to repay the loan at any time, if they so desire. Unlike a HELOC, however, the borrower may only enjoy a tax decution for accrued interst at the time repayment begins. Back to top Is any home eligible for a reverse mortgage? Most single-family homes, two-to-four unit owner-occupied dwellings, townhouses, condominium units, and some manufactured homes are eligible for a reverse mortgage. The home must meet FHA minimum property standards. If home repairs are required, in some cases they can be completed after closing using funds from the reverse mortgage. Benefits Does the borrower have to make monthly mortgage payments? No. Unlike a traditional home mortgage or equity loan, the borrower does not have to make monthly loan payments. And, at the time of the reverse mortgage loan, any existing mortgage will be eliminated which can allow for improved retirement cash flow. As with all mortgage loans, you must continue to pay your property taxes and homeowners’- insurance. Back to top Are there income or credit score requirements necessary to qualify? There are no credit score and generally no income requirements. The borrower must meet certain eligibility requirements, however, and there may be income qualificiations if the reverse mortgage loan is used to purchase a home. Does the borrower still own the home? Yes. As with traditional mortgages, the borrower keeps the title to the home and the lender becomes a lienholder. The borrower owns and can remain in the home as long as loan requirements such as payment of taxes and insurance are met. Back to top What are the out of pocket costs? The borrower does not have to pay anything up front with a reverse mortgage from GFHEA, with the exception of the cost of HUD-required counseling. In some instances the counseling fee may be waived. All other costs – such as origination fees, third-party closing costs, and FHA mortgage insurance premiums – can be financed as part of the loan. Will a reverse mortgage loan affect my client's eligibility for Social Security or Medicare benefits? A reverse mortgage usually does not affect eligibility for entitlement programs such as Medicare or Social Security. However, some needs based government benefits, such as Medicaid and Supplemental Security Income (SSI), may be affected by a reverse mortgage. We recommend consulting with a benefits specialist to determine the extent of any impact. Back to top Reverse Mortgage Proceeds How much money does a borrower receive? In general, the older the borrower, the more valuable the home, and the lower the loan balance, the more money a borrower can receive from a reverse mortgage. How does the borrower receive the loan proceeds? There are a variety of payment options available to the borrower. For an adjustable rate product, proceeds may be distributed in a lump sum payment, a monthly check, a line of credit, or a combination of these. Fixed rate products are distributed in lump sum. The borrower chooses the product and option that best fits the needs. Back to top Does the borrower have to pay income taxes on the loan proceeds? Funds distributed through a reverse mortgage loan are not income and, therefore, not taxable. And the interest rate charged by the lender on the loan can be deducted at the point at which the loan principal and interest are repaid. We recommend consulting with a tax professional for details. Are there any restrictions on how the borrower may use loan proceeds? The borrower may use the reverse mortgage loan proceeds in any way they choose. Many put the money into a line of credit for home repairs or improvements, or to purchase long-term care insurance. While there are no restrictions on how proceeds are used, it is generally recommended that borrowers do not purchase risky investments or certain annuity products as this may cause restricted access to cash or even erode the loan proceeds. Back to top Loan Repayment Does the borrower have to repay the reverse mortgage loan? Yes, repayment is required at the end of the loan life. The loan life ends when the home is no longer the borrower's primary residence, provided the borrower continues to meet other loan obligations such as payment of taxes and insurance. Will the borrower ever have to pay more than my home is worth? Not if the home is sold to repay the loan. A benefit of the FHA insurance is that the Mortgage Insurance Premium (MIP) serves to limit loan repayment to the value of the home at the time of sale. The lender has no claims on any other assets that may be held by the borrower or the borrower's heirs. What happens to the home when the borrower passes away? Upon the death of the borrower, the reverse mortgage loan becomes due. The heirs may either sell the home to repay the loan or keep the home by repaying the full loan balance. If the home’s value has appreciated during the term of the reverse mortgage, the heirs keep any remaining equity after repayment of the reverse mortgage loan. Back to top |
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