Frequently Asked Questions
FAQs & FACTS
Welcome to our comprehensive, easy-to-use resource for answers to reverse mortgage questions—and for myth-busting facts about California’s reverse mortgage loans.
Learn the facts about reverse mortgages in 2024.
We’ve created this Frequently Asked Questions list to answer your questions about Reverse Mortgages.
We hope it clarifies the qualification requirements for you as well as answers your questions. A reverse mortgage loan can be a powerful financial tool solution and it has already helped thousands of seniors enjoy a nicer quality of life.
But first, here’s important background information about types of reverse mortgages.
The reverse mortgage loan program was created by the U.S. Department of Housing and Development (HUD). It was designed to help senior homeowners supplement their income by using the equity in their homes . Called a Home Equity Conversion Mortgage (HECM), It is the only reverse mortgage insured by the U.S. Federal Government.
Have more reverse mortgage questions? Contact us for answers!
If you have more questions about reverse mortgages like the HECM and more, feel free to contact your Reverse Mortgage Ready loan professionals, Edith at 408 313-6162 and Wendy at 408 209-5569 today.
Frequently Asked Questions
How do I qualify for a Reverse Mortgage and what are the requirements?
To qualify for a reverse mortgage, you must be 62 years old or older, plus you must live in the home as your primary residence. You also must have:
• equity in your home
• the ability to maintain your home
• the responsibility for paying your property taxes and homeowners’ insurance.
There are loan programs available for those age 60 and up, with different lending guidelines. Please call us to learn more about those.
Does the bank own my home when I take out a Reverse Mortgage?
No, the bank does not own your home. Like any mortgage, you are taking out a loan against your home. The difference is that you are not required to make any monthly mortgage payments. Therefore, your loan principal amount grows due to the interest every month if you do not make any payments. Instead of paying down your loan balance, your loan amount is growing, and that is why it is called a “reverse mortgage”. You are using the increasing equity in your home to offset the higher loan balance.
When do I pay the money back on a reverse mortgage?
Some reverse mortgage borrowers worry about having to repay their loan balance. Here are the conditions under which you generally have to repay a reverse mortgage:
• When the last surviving borrower dies, sells the home, or permanently moves away. “Permanently” generally means that the borrower hasn’t lived in the home for 12 consecutive months.
• Possibly, if you do any of the following:
– Fail to pay your property taxes
– Fail to keep up your homeowners insurance
– Let your home fall into disrepair
If you fail to properly maintain your home and it falls into disrepair, the lender may be able to make extra cash advances to cover these repair expenses. Just remember that reverse mortgage borrowers are still homeowners and therefore are still responsible for taxes, insurance, and upkeep.
How do reverse mortgages affect my government-sponsored benefits?
Because they don’t count as income, loan advances on a reverse mortgage generally don’t affect your benefits if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), it counts as a liquid asset. If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility.
If anyone in the business of selling annuities has tried to sell you on the idea of using proceeds from a reverse mortgage to purchase an annuity, you need to know that annuity advances reduce SSI benefits dollar for dollar and can make you ineligible for Medicaid. So if you’re considering an annuity and if you’re now receiving — or expect that someday you may qualify for — SSI or Medicaid, check with the SSI, Medicaid, and other program offices in your community. Get specific details on how annuity income affects these benefits.
What do I owe on a reverse mortgage?
The total amount you will owe at the end of the loan (your loan balance) equals
• All the cash advances you’ve received (including any used to pay loan costs)
• Plus all the interest on them — up to the loan’s nonrecourse limit (the value of the home)
If you get an adjustable-rate reverse mortgage, the interest rate can vary based on changes in published indexes. The greater a loan’s permissible interest rate adjustment, the lower its interest rate initially. As a result, you get a larger cash advance with this type of loan than you do with loans that have higher initial interest rates.
You can never owe more than the value of the home at the time the loan is repaid. True reverse mortgages are nonrecourse loans, which means that in seeking repayment the lender doesn’t have recourse to anything other than your home — not your income, your other assets, or your heirs’ finances.
Can I purchase a home with a reverse mortgage?
YES, you can. If you intend to purchase the home as your primary residence and if you
qualify with your age and equity percentage. Example: You sold your home for $1M.
You had a mortgage of $150,000. Your estimated proceeds at close are $780,000.
You want to purchase a smaller home for $600,000. You use $400K as your down payment.
You take a reverse mortgage for $200K and keep $380K in cash.
Can I refinance my current reverse mortgage?
YES, you can. Depending on the terms and the balance of your loan your mortgage consultant
can review the benefits of a refinance. The recent decline in mortgage rates have also affected the interest rates of a Reverse Mortgage. By refinancing into a lower rate, you will preserve the equity in your home.
8 Myths About Reverse Mortgages
Even today, there are a lot of myths still out there regarding reverse mortgages. So, we thought we’d share some of the most common ones that senior homeowners as well as their adult children ask us. We hope this valuable information helps you better understand the real benefits about this federally supported loan program.
MYTH # 1
The Bank/Lender Owns Your Home
Not True.
THE REAL TRUTH
This is a big misconception. Just like any other mortgage, the borrower still owns the home and remains on Title.
MYTH # 2
Reverse Mortgages are a Scam.
There is nothing further from the truth.
THE REAL TRUTH
Reverse Mortgages are FHA Loans, or Lender Proprietary Programs, and as such are highly regulated. There are several safeguards built into the loan programs to protect the homeowners/borrowers.
MYTH # 3
Social Security and Medicare income will be affected by a Reverse Mortgage
Not True.
THE REAL TRUTH
Having a reverse mortgage does not change your Social Security or Medicare benefits, but Medicare and other needs-based government assistance might be affected. It is best to check with the government agency that provides your assistance to determine if the loan proceeds would affect your benefits.
MYTH # 4
The homeowner will pay income tax on reverse mortgage loan proceeds.
Again, not true.
THE REAL TRUTH
This is like any other mortgage loan, and the loan proceeds are not taxed.
MYTH # 5
My heirs will not inherit the home.
Not true.
THE REAL TRUTH
The home remains a part of your total assets and gets passed on to your heirs as part of your estate. Any loan balances owed would have to be paid off within 12 months of your death, either through the sale of the home, or a refinance of the reverse mortgage loan. The remaining equity is passed on to your heirs.
MYTH # 6
Homeowners could outlive the reverse mortgage loan.
Not True.
THE REAL TRUTH
Even if the homeowner’s loan balance at the time of their death exceeds the value of the home, the homeowner’s estate is not responsible for paying any amounts owed in excess of the loan balance. In a Home Equity Conversion Mortgage (HECM), which is insured by FHA, the lender is guaranteed to be paid in full even if the loan exceeds the proceeds of the sale of the home.
MYTH # 7
Reverse Mortgages are too expensive.
Not True.
THE REAL TRUTH
Reverse mortgages have costs, which vary depending upon the borrowers’ needs. The loan products are created to protect the borrowers’ best interests and some of the costs of the loan reflects that.
MYTH # 8
Reverse Mortgages are a loan of last resort.
Not True.
THE REAL TRUTH
Reverse mortgages can be used as a retirement and financial planning tool for many years. These loans are not just for the financially-strapped, but also for borrowers that want another tool to make the most of their retirement income by using some of their home equity. The reverse mortgage loan can augment other retirement assets, and help preserve a quality retirement by not tapping into interest-yielding assets during weak financial times.
