A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:
- all at once, in a single lump sum of cash;
- as a regular monthly cash advance;
- as a "credit line" account that lets you decide when and how much of your available cash is paid to you; or
- as a combination of these payment methods.
No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.
What types of homes are eligible?
To qualify for a reverse mortgage your home must be a single family dwelling or at least a two-to-four unit property that you own and occupy. Reverse mortgage are also used on Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. All condominiums must be FHA-approved to be considered as a reverse mortgage type of collateral. It is still possible for condominiums to qualify under the Spot Loan program. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
Can the lender take my home away if I outlive the reverse mortgage?
No! Nor is the loan due. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value on a reverse mortgage.
How do I receive my income payments on a reverse mortgage?
You have five options:
- Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term - equal monthly payments for a fixed period of months selected.
- Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
- Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
What are some of the potential drawbacks of Reverse Mortgages?
- Reverse Mortgages are even more complicated than conventional mortgages and the consequences of various options are not always obvious up front.
- They may be relatively expensive compared to other alternatives.
- Although the money you receive is tax-free, it may affect your eligibility for “need based” public assistance benefits such as Medicare, Supplemental Social Security Income (SSI) and Medicaid/MediCal.
- Reduces the equity you have in the property which could cause a potential negative impact for your heirs.
- Reverse Mortgages are often not well understood, even by real estate and legal professionals. (Check out their experience level before accepting their advice.)
Resource Information below:
Reverse Mortgage Education Project
601 E Street, NW
Washington, DC 20049
U. S. Department of Housing and Urban Development (HUD)
451 7th Street, SW
Washington, DC 20410
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
ftc.gov/credit — Click on “Mortgages & Your Home” 1-877-FTC-HELP (1-877-382-4357)
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