Top Reverse Mortgage Questions, Part 1
1. What is a reverse mortgage?
A reverse mortgage is a special type of loan used to “unlock” the equity in older homeowners’ (ages 62+) homes. Reverse mortgages enable seniors to cash in on the equity in their homes without giving up ownership of the property. The tax-free income is a loan, and payments are deferred until the homeowner dies, sells the property, or no longer resides in the home full-time. The homeowner receives this money without having to make reverse mortgage loan payments, sell the property, or transfer the title.
2. What types of homes are eligible?
Single-family homes, two to four unit multi-family housing, manufactured homes (built after June 1976), townhouses, and condominiums are eligible for reverse equity mortgages.
3. Am I eligible for a reverse mortgage?
To be eligible for a reverse equity mortgage, the homeowner must:
• Be at least 62 years of age
• Own the property outright or have a low enough mortgage balance that the mortgage can be paid in full at closing using proceeds from the reverse mortgage loan
• Live in the property
• Receive third-party financial counseling from a Department of Housing and Urban Development-approved counseling agency
4. How much money can I get?
The amount of money the homeowner is eligible to receive depends on five factors:
• The age of the borrower, or of the age of the younger spouse; the older the homeowner, the more money the homeowner is eligible to receive
• The appraised value of the property, minus the cost of any health or safety repairs required to bring the home up to code
• The lending limits (where applicable); lending limits vary on a county by county basis
• Interest rates, which are determined by the U.S. Treasury or LIBOR Index
• The payment plan selected by the borrower
5. How do I collect my money?
The loan monies can be disbursed in a variety of payment options:
• Tenure: fixed, equal monthly payments that will continue for as long as at least one borrower is living in the property as a main residence
• Term: equal monthly payments for a predetermined period of time
• Line of Credit: funds are available for disbursement in lump sums or installments on dates and in amounts at the borrower’s discretion until the credit line is depleted
• Modified Tenure: combines credit line with monthly payments for as long as the borrower is living in the property as a main residence
• Modified Term: combines credit line with monthly payments for a predetermined number of months chosen by the homeowner