Reverse Mortgage: Is It Right For You:
A reverse mortgage is a type of home equity loan which allows
homeowners to convert part of the equity in their homes into
tax-free income without having to sell their home, give up title, or
take on a new monthly mortgage payment. The reverse mortgage is seen
as an important retirement consideration for many people. Instead of
making monthly payments to a lender, as with a regular mortgage, a
lender makes payments to you. These payments can be a supplement to
Social Security for people after the age of retirement.
To qualify for a reverse mortgage:
• You must be the titleholder of the property
• You and all other borrowers must be 62 or older
• Your existing mortgage balance must be paid off at closing
• Your home must be an eligible property type
What’s an eligible property type?
• Single family home
• 2–4 unit multi-family home (one unit must be your primary
residence)
• Condominium
• Planned unit development
• Modular home
• Manufactured home (available only with Home Equity Conversion
Mortgage)
• Located in an eligible state
• Ineligible properties include a cooperative (co-op) or mobile
home.
When would a reverse mortgage not be a good idea.
• You want to leave your home to your heirs, and they will not or
cannot pay back the loan with other funds or financing
• You are considering moving within a few years
• You’re looking for funds to invest
How much do you receive?
The reverse mortgage loan amount you may receive varies based on
which reverse mortgage product you choose, your age(s) as the
borrower(s), the appraised value of your home, and current interest
rates. Generally, the more valuable your home is and the older you
are, the more you can borrow.
When will the loan mature and the balance become due?
• The last remaining borrower passes away
• The last remaining borrower sells the home
• The borrower fails to live in the home for more than 12
consecutive months
Other circumstances that may cause the loan to become due
include:
• You transfer the title to another person or entity
• You fail to pay property taxes
• You fail to maintain and/or repair the home
• You fail to keep the home insured
Loan amount owed:
You’ll never owe more than the appraised value of your home. When
the loan balance becomes due and payable, your home will be
re-appraised to determine its value. Based on the appraised value
and the outstanding loan balance, two scenarios are possible: the
loan balance is less than the appraised home value, which means you
or your heirs only owe the loan balance, or the loan balance is more
than the appraised home value. If the loan balance is greater than
the appraised home value, you or your heirs owe the appraised home
value, but nothing more. You or your heirs may sell the home in
order to pay the balance.
Potential effects on taxes and government aid:
With any reverse mortgage, it’s important to understand how your
existing financial situation may be affected. A Reverse Mortgage may
affect your tax status and/or your eligibility for government aid
programs. Also, your eligibility to participate in any real estate
tax deferral program offered by your city or county may be affected.
For additional information about your specific situation, it is
recommended to consult with a tax professional.
Since you still own your home when you get a reverse mortgage, you
are still responsible for paying your property taxes. You may use
the proceeds from a reverse mortgage to help make these payments.
It’s important that you keep your taxes current because the loan may
become due if they’re not paid.
Reverse mortgages don’t affect entitlement programs such as
Medicare. However, certain need-based government aid programs, such
as Supplemental Security Income (SSI) and Medicaid, may be affected.
It is recommended that you consult your Medicare, Social Security or
Medicaid administrator to determine the specific rules surrounding
SSI and reverse mortgages.
Insurance: After getting a reverse mortgage, you will
continue to be responsible for maintaining an acceptable amount of
property insurance, including flood insurance, where necessary.
Fees: There are reverse mortgage fees which are similar to
those you’d pay on a first mortgage. All of the fees can be financed
with the loan, so you’ll have no out-of-pocket expenses. Fees can
vary, depending on which reverse mortgage product you choose.
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