WHAT IS A REVERSE MORTGAGE? A REVERSE MORTGAGE is a unique loan that enables senior homeowners to convert part of the equity in their homes into income without having to sell the home, give up title, or take on new monthly mortgage payments. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free. Borrowers can choose to receive reverse mortgage funds as a lump sum, monthly income, line of credit or a combination. Borrowers can use the funds any way they wish.
Commonly Asked Questions
Q. Can a reverse mortgage be taken out if there is already a conventional mortgage on the home?
A. Yes, but existing mortgages must be paid off at closing. The proceeds from the reverse mortgage may be use for that purpose. This
eliminates a monthly mortgage payment.
Q. What about a home in a “living trust”?
A. A homeowner who has put the home in a living trust can usually take out a reverse, subject to review of the trust
documents.
Q. Will I have any tax liability for the reverse mortgage proceeds?
A. Currently the Internal Revenue Service treats monies received from a reverse mortgage to be loan advances and not taxable income
(consult your tax advisor).
Q. Can the interest charge on my loan principal be deduct for tax purposes?
A. The interest accrues and is deductible when the loan balance and interest are repaid after the borrower permanently leaves the
property.
Q. How do the monies from a reverse mortgages affect Social Security and Medicare?
A. The proceeds from a reverse mortgage do not affect these benefits.
Q. What are the upfront costs associate with a reverse mortgages?
A. The borrower will pay an origination fee and actual closing costs, including charges by the title and escrow companies, and an
insurance fee to HUD when applicable. All of these costs can be finance as part of the initial loan advance.
Q. What is due when the loan is repaid?
A. The borrower pays back the cash advances they have receive plus accumulate interest and any fees/costs that were finance.
Q. What if I owe more than my home is worth?
A. All reverse mortgages are “non-recourse” loans, which means that the borrower can never owe more than the value of the home
regardless of loan balance.
Q. Does the lender take the house?
A. This is a misconception: a reverse mortgag is merely a loan against the property. The title remains in the name of the borrower and
the lender is only repaid the loan balance.
Q. When does the loan become due and payable?
A. The loan is due and payable when the borrower sells the property, permanently leaves the home, or passes away. In the case of a
couple, it is the second to move out or die that triggers repayment. Until these events take place you live in the home and make no
payments to the lender.
Q. Do I or my heirs have to sell the property to repay the loan?
A. No, repayment can be accomplish by refinancing the existing reverse mortgage with a conventional mortgage loan.