Common Questions On Reverse Mortgages
 

What does mortgage principle mean?  Mortgage principle is the amount of  money that a homeowner borrows.  It does not include the interest.
 
What is an adjustable rate mortgage?
An adjustable rate mortgage or ARM, is a mortgage that has payments changes periodically due to changes in market interest rates.

What is an interest-only mortgage?
Interest only mortgages require the borrower to pay just the interest on the principle for a fixed period of time.

Will the borrower be taxed on the proceeds from the reverse mortgage?  No, the borrower will not be taxed on the principal received from the reverse mortgage because this is a loan and therefore is not taxable as income. Consult your tax advisor.
 
Can the senior be forced to sell or vacate the home if the money owed on the loan exceeds the value of the home? A reverse mortgage borrower has three (3) responsibilities:

as long as the borrower can satisfy these requirements, the borrower will NEVER be forced to sell the home.
 
Additionally, when the loan does finally become due, the reverse mortgage lender is only secured to the real property. Thus, the lender can only look to the value of the real estate for repayment of the reverse mortgage and not any other asset in the borrower’s estate. Furthermore, neither the borrower nor the borrower’s estate will be subject to any claim that may arise if the value of the property is less than the payoff of the reverse mortgage. FHA mortgage insurance will cover any balance due the lender.

How does a reverse mortgage differ from a home equity loan?
Both reverse mortgages and home equity loans enable senior homeowners to turn the equity in their home into spend able dollars. Some important differences include:

 

Where should I shop for a mortgage?  Using the services of a mortgage broker is the best way.  Mortgage Brokers have access to multiple lenders. They know which lenders are better for the various mortgage products and they do the shopping for you.  As a Mortgage Broker I have relationships with over 100 lenders!
 
What is mortgage insurance?
Mortgage insurance is designed to reimburse a mortgage lender up to a certain amount if you default on your loan and your house isn't worth enough to entirely repay the lender through a foreclosure sale. Most lenders require MI on loans where the borrower makes a down payment of less than 20%.
 

Will the borrower's heirs ow anything to the lender upon the death of the borrower? 
Upon death, the loan balance becomes due and payable. The estate may repay the loan by either selling the home or by refinancing the mortgage. If the loan exceeds the value of the property, the estate will owe no more than the value of the property. No additional financial claims may be made against the heirs or the estate. In a worst case scenario, nothing more than the value of the real estate is ever at risk to the borrower’s heirs because of a reverse mortgage.
 
Will reverse mortgage payments affect social security medicare supplemental security income (SSI) or medicaid benefits?
Reverse mortgage payments do not affect Social Security or Medicare benefits because those benefits are not based on the assets of the borrower. However in certain programs, beneficiaries must keep their liquid assets under certain limits. Generally, if the proceeds from the reverse mortgage are not spent in the month received, then these funds are considered part of the liquid assets and may adversely affect eligibility for SSI and other programs. Therefore, a borrower who also receives SSI or participates in other income- or need-based programs should never draw more money than the borrower actually needs to spend that month. Regulations for state-administered programs such as Medicaid and food stamps all have different eligibility requirements. Accordingly it is suggested that the borrower consult their attorney, financial advisor, or a benefits specialist at the local area Agency on Aging or the local offices for these programs to determine how reverse mortgage payments may affect the borrower’s particular situation.

Repayment?
All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. (Typically, a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.) Reverse mortgage lenders can also require repayment at any time if you:

These are fairly standard "conditions of default" on any mortgage. On a reverse mortgage, however, lenders generally have the option to pay for these expenses by reducing your loan advances and using the difference to pay these obligations. This is only an option, however, if you have not already used up all your available loan funds.

Get Help?

There are a lot of questions that you may have, call me, I’m happy to help and answer all your questions.  In fact, I’ll probably give you some answers to questions you haven’t thought of yet. My office phone number is 805-409-0554.