What is a Reverse Mortgage?

A Reverse Mortgage is a unique loan that enables senior homeowners to convert part of the equity in their home 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 own home.

How does a Reverse Mortgage differ from a conventional loan?

Does not require repayment until:

  • Borrower(s) move out
  • Borrower(s) sell the property
  • Borrower (s) pass away
  • No monthly mortgage payments

What are the qualifications for a Reverse Mortgage?

  • All individuals on the title must be 62+ years or older
  • Home must be 1 to 4 units – family residences
  • Most Condominiums and P.U.Ds are OK
  • Manufactured housing is acceptable on an approved FHA foundation. Must have been constructed after June 15, 1976. Not located in a condominium association.
  • All existing mortgage loans must be paid off. This usually can be financed within the Reverse Mortgage.
  • There is a mandatory free counseling session by a HUD approved Counselor. Counseling can be taken in person or over the telephone.

How do I use home equity?

Benefits of a Reverse Mortgage are calculated by:

  • Appraised value of the home or the maximum lending limit (whichever is less)
  • The age of the youngest borrower
  • Current interest rate

How can I use the funds from my Reverse Mortgage?

There are no restrictions on how you use the funds by borrower(s) in California Proceeds from a Reverse Mortgage are non-taxable. Consult your tax Advisor.

How safe is the FHA Reverse Mortgage?

  • The FHA (Federal Housing Administration) administers the HECM loan program and guarantees that borrower(s) receive their requested loan advances if the lender defaults.
  • The borrower(s) or their heirs will never owe more than your house is worth at the time the Reverse Mortgage is repaid.

How are the funds received?

There are four payment options:

  • Tenure – This amount is guaranteed for the life of the borrower(s).
  • Term Payment – Borrower can determine how many months to receive payment.
  • Line of Credit – Funds may be retained in the line of credit and grow approximately ½ percent over the current rate of the loan.
  • Lump sum at close of escrow
  • Combination of the above

You can change your plan at any time during the life of the loan.

What are the up-front & financed costs?

During the loan process you will be provided an itemized estimate of all closing costs. All closing costs may be financed through the loan.

Typical loan costs:

  • Appraisal – Appraiser must be FHA certified to satisfy the HECM loan requirements
  • Title Insurance
  • Origination Fee
  • FHA Mortgage Insurance
  • Recording fees
  • Flood Certification
  • Credit Report
  • Courier fee

As well as other typical and customary closing costs

How are interest rates calculated?

The initial interest rate is based on the weekly average yield on US Treasury securities adjusted to a constant maturity of one year plus a margin.

What’s involved in the appraisal process?

  • The home must meet all FHA guidelines.
  • A termite report may be required. In most cases this is left up to the Appraiser.
  • If repairs are needed, in most cases, they can be funded through the loan.
  • In some instances, well and septic tank tests may be required.

What are the borrower’s responsibilities?

  • Utilize the home as the primary residence
  • Maintain the property in good condition
  • Keep property taxes current
  • Maintain adequate homeowner insurance

How do I repay the loan?

  • No income or minimum credit qualifications
  • No repayment is necessary until borrower(s) move, sell or pass away
  • No penalty for early payment
  • Non-recourse loan

What are the benefits of a Reverse Mortgage?

  • You will always maintain the benefits of home ownership. Title to your home remains in your name and on the Deed. As the owner, you remain responsible for keeping current with property taxes, homeowner’s insurance and maintaining the condition of the home. No repayment is necessary until borrower(s) move, sell or pass away.
  • You will continue to enjoy the benefits of your loan as long as you remain in your home.
  • A Reverse Mortgage can secure your financial future by providing funds for projects and activities. The loan will provide funding that will satisfy any mortgages and loans that are now in force. No more monthly loan payments.
  • Because Reverse Mortgages are considered loan advances and not income, the IRS does not consider them to be taxable. Funds paid to you will not affect your Social Security or Medicare benefits.

What kinds of Reverse Mortgages are available?

  • Federally-insured Reverse Mortgages – These are known as Home Equity Conversion Mortgages. They are insured by the U.S. Dept. of Housing and Urban Development (HUD). They are widely used. The funds can be used for any purpose.
  • Proprietary Reverse Mortgages – These are private loans with unique features that will appeal to certain types of borrowers. They are underwritten by the lenders who develop them.