A reverse mortgage is an important decision that should not be rushed.
At Lineage Lending, we believe in conveying information and knowledge to our clients that will make them feel comfortable and secure with whatever decision they make. Here are some basic questions and answers that explain the reverse mortgage loan.
What is a Reverse Mortgage?
A reverse mortgage is a unique loan available to homeowner(s) age 62 and older that uses the equity in their home to provide cash flow. The loan is called a reverse mortgage because instead of making monthly mortgage payments to a lender, as in a traditional mortgage, the lender makes payments to the borrower. The loan is not required to be paid back until the last borrower vacates the house or the borrower(s) fail to keep up on property taxes, insurance and reasonable maintenance.
What is the difference between a home equity loan and a reverse mortgage?
A home equity loan requires that the borrower has sufficient income to cover the debt and continue making monthly principal and interest mortgage payments. A reverse mortgage ends monthly principal and interest payments and is not due for repayment until the borrowers stop using their home as their primary residence.
What types of homes are eligible for a reverse mortgage?
Single-family homes, detached homes, townhouses and two-to-four unit properties that are owner occupied as primary residences are eligible for a reverse mortgage. Condominiums must be FHA approved and some manufactured homes are also qualified, but must meet FHA guidelines.
What happens if the borrower(s) outlive the loan? Will they have to repay the lender?
Not until the last borrower stops using the property as their primary residence. As long as at least one borrower lives in the home and keeps up to date on property taxes, insurance and maintenance, the loan will not have to be repaid.
Does the house have to be paid off in order to be eligible for a reverse mortgage?
No. The house does not have to be paid off to qualify. However, the borrower must use the loan proceeds received from the reverse mortgage to pay off the existing mortgage or liens (if there is a mortgage balance owing). The borrower will continue to hold title to the home.
What about taxes on the cash received from a reverse mortgage?
Typically, the cash received from a reverse mortgage is not subject to individual income taxation. Borrowers are are still responsible for property taxes, insurance, utilities, fuel, maintenance, and other home-related expenses. Interest on reverse mortgages is typically not deductible on income tax returns until the loan is paid off in part or in whole. Reverse Mortgage Professionals always recommend that borrowers consult with their tax advisor to provide guidance for their individual situation.
How much cash can be expected to be made available with a reverse mortgage?
Typically, the amount of cash a borrower can access is based on the age of the youngest borrower, mortgage option selected, the current expected interest rate, the amount of equity in the home and the appraised value of the home.
How will a reverse mortgage affect the borrower’s estate and heirs?
Borrowers can leave their home to their heirs. A reverse mortgage is a non-recourse loan. This means that the lender can only seek repayment through the sale of the property. The lender cannot look to the estate for repayment. The heirs have the option to pay off the balance of the reverse mortgage (principal plus accumulated interest and MIP) potentially through obtaining a new conventional mortgage and keep the home, or sell the home and use a portion of the proceeds to pay off the reverse mortgage, and then keep any remaining balance.
Do I have to come up with money for any up-front costs?
Most of the associated loan costs are financed as a part of the loan. Up-front costs for borrowers are usually only the financial counseling fee and an appraisal deposit.
How do I receive my payments?
Reverse mortgage payments can be received in one of five ways:
- Tenure: equal monthly payments
- Term: equal monthly payments for a fixed period of months as specified by the borrower(s)
- Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s)
- Modified Tenure: monthly payments with a line of credit
- Modified Term: monthly payments for a fixed period of months with a line of credit
Give Lineage Lending a call today with any questions regarding a reverse mortgage. As reverse mortgage originators, they are experts in all aspects of the loan process and will answer in clear, precise language.