Will we lose our home?
No. When you obtain a reverse mortgage you continue to own your home. A reverse mortgage is a home loan that requires no repayment as long as one borrower remains living there.
What happens to our home when we pass away?
Your home will go to your heirs, and the outstanding loan balance (cash you’ve used plus interest and any servicing charges) must be repaid at that time. Your heirs may sell the home, pay off the outstanding loan balance and keep the remaining cash, or refinance the outstanding loan balance (or use other assets to repay it) and keep the home. Your heirs are given a reasonable amount of time to resolve estate issues and repay the reverse mortgage.
What happens if we decide to live somewhere else?
Your home needs to remain your principal place of residence when you have a reverse mortgage. You may usually leave your home for vacations or for other reasons for up to 12 consecutive months. If you decide to sell your home, you simply repay the outstanding loan balance from the sale proceeds and keep the remaining cash.
What happens if my spouse or I need to go to a nursing home?
The reverse mortgage need not be repaid as long as one homeowner remains in the home. Once the last homeowner leaves the home permanently the loan will need to be repaid.
What happens if the outstanding loan balance exceeds the value of my home?
Nothing happens while you are living there. Your line of credit and/or monthly payments continue as long as one homeowner remains there. Once your home is sold, if the net sales price resulting from an arm’s length transaction is not enough to repay the outstanding loan balance, you or your heirs are not required to repay the difference to the lender.
How long do our heirs have to repay the outstanding loan balance?
An amount of time that is reasonable to settle the estate. Generally, foreclosure may begin if the loan is not repaid within 6 months of the last homeowner passing away.
How long does it take to obtain a reverse mortgage?
When dealing with an experienced reverse mortgage lender it should take about the same amount of time as a typical refinance. Issues like extensive required home repairs and counselor availability may slow the process however.
Are reverse mortgages costly?
The closing costs for HUD reverse mortgages are usually higher than a regular home loan, but their interest rates are usually very good. These higher closing costs are mainly the result of HUD’s charge for Mortgage Insurance Premium. Their closing costs are absorbed by the loan, so very little cash is needed to obtain a reverse mortgage. Because of their closing costs, HUD reverse mortgages are sometimes not the best choice for homeowners that plan on moving from their home within a couple of years. Over time the interest rate becomes more important than the closing costs, so homeowners that plan on remaining in their home for at least 5 years or so will find that HUD reverse mortgages are a good choice, while other options may be better for shorter periods of time. An expert can help you identify the most cost-effective alternative given your situation.
What is Loan Service Set Aside?
This applies to HUD reverse mortgages only. Loan Service Set Aside represents the amount that Loan Servicing Fees (see prior discussion) may add up to when the youngest homeowner reaches life expectancy. Loan Service Set Aside is not a closing cost, rather it is part of the calculation to arrive at the amount of cash available to the homeowners.
What if we already have a mortgage?
The reverse mortgage will pay off your existing loan. For example, if you qualify for $200,000 from a reverse mortgage and currently owe $50,000 on your home, after paying off your existing loan $150,000 remains available for your use. You will no longer have monthly payments to make on the $50,000 loan, and the remaining $150,000 is available as a Lump Sum at Loan Closing, Line of Credit, or to establish monthly income by receiving Tenure or Term payments.
What if we have a living trust?
Your trust will need to be reviewed to ensure that the reverse mortgage doesn’t violate its terms (most living trusts allow for a reverse mortgage).
What if one or both of the homeowners are unable to make financial decisions?
Depending on the situation, a power of attorney, conservatorship, or other course of action may be needed.
Do our income and credit have anything to do with our ability to obtain a reverse mortgage?
No. The amount of cash you qualify for is based on the age of everyone on title to your home (all must be at least 62, and older homeowners qualify for more cash), the value of your home, the county in which it is located, and interest rates at the time. Your income and credit have no affect on your interest rate or closing costs.
What if someone is currently on title to our home that is under the age of 62?
You can probably remove them from title and qualify for a reverse mortgage. This is commonly done with children that have been placed on title to qualify for a regular home loan or for other reasons. This may also be done with a spouse, but you need to carefully consider that if the spouse that remains on title leaves the home permanently, the reverse mortgage will need to be repaid.