What is a reverse mortgage?
A Home Equity Conversion Mortgage (HECM) is more commonly referred to as a reverse mortgage. It allows homeowners over the age of 62 to borrow money against the equity in their home. Success Partners, INC has been helping homeowners in northern Michigan, including Traverse City, Charlevoix, Cheboygan, and Petoskey decide whether a reverse mortgage is right for them.
Is a reverse mortgage right for me?
If you are over the age of 62 and own your own home, you may qualify for a reverse mortgage. Your home must not have any other liens against it, like an existing mortgage. It can help you get a loan for medical expenses, help you pay off your mortgage, and you retain the title of your home. Contact us to help us decided if a reverse mortgage makes sense for you.
What types of homes are eligible for reverse mortgage financing?
To qualify for a reverse mortgage, the home must be your primary residence. Vacation homes, secondary residences and rental properties are not currently eligible. If you have more than one property, you should contact a Reverse Mortgage Specialist at 231-313-1800.
Are the proceeds from a reverse mortgage taxable as income?
No, because a reverse mortgage is a loan, you are only borrowing against the equity in your home. This is not considered income, and therefore it is not currently taxable according to the IRS. Contact your tax advisor for more information regarding reverse mortgages and your specific tax situation.
Will a reverse mortgage affect my Social Security or Medicare benefits?
No. Reverse mortgages have no affect on your Social Security or Medicare benefits, however if you are receiving Medicaid benefits, you may want to consult an elder law professional before proceeding.
Can I get a reverse mortgage if my home is in a “Living Trust?”
Yes. As long as the living trust meets certain HUD requirement (nearly all of them do), your home qualifies for a reverse mortgage.
I know I don’t have to make monthly payments with a reverse mortgage, but are there other obligations?
Yes. You are responsible for paying your home insurance and property taxes in a timely manner. You are also required to maintain the reasonable condition of your home.
What is the Mortgage Insurance Premium (MIP)?
The U.S. Dept. of HUD insures reverse mortgages and for that they charge a fee at closing. For this fee, they insure that you will always get your funds for the life of the loan, and that you will never have to pay back more than the value of your home at the end of the loan.
Can I ever owe more than the value of my home?
No. A reverse mortgage is a “non-recourse” loan which means that you never have to pay back more than the value of your home at the time the home is sold. This is true regardless of your loan balance when you or your heirs sell it. Because HUD insures reverse mortgages, the government would be responsible to pay the lender the difference. This is why you pay a Mortgage Insurance Premium (MIP) to HUD.
How much do I pay back at the end of the loan?
At the end of the loan, you would pay back the total of your initial draws and any subsequent draws, plus all interest and fees accrued during the life of the loan.
Do I still own my home?
Yes. Just like all other traditional loans, you still own your home, and have complete control over it. The reverse mortgage is only a lien on the home.
What happens to my home if I die?
At the time the last surviving borrower dies, the reverse mortgage must be paid in full with all interest and fees. This can be done by the heirs selling the home or paying off the reverse mortgage with cash or new financing.
If I die and my heirs wish to sell the home to pay off the reverse mortgage how much time will they have to do so?
If your heirs cannot afford to pay off the reverse mortgage without selling the home, HUD will give at least 6 months for the sale, and extensions can be granted in certain circumstances.
How do I know how much I owe during the term of the loan?
Each month you will receive a monthly statement which will give you the status of your account including such things as your outstanding loan balance, periodic interest charges and fees, and other pertinent information.
If I choose a credit line, how do I request funds when I need them?
Line of credit draws are typically done by mailing or by faxing a request form signed by the borrowers. The funds are commonly wired to the borrowers account within 3-5 days. For emergencies, there are expedited methods. Talk with your reverse mortgage servicer.
Can I change the way I get my money after I close?
Yes. There are three ways to receive money from a reverse mortgage, a lump sum, a monthly payment (to you), or a line of credit. If after you close you wish to receive your funds in a manner different than the method you chose at closing, you have the option of switching methods by notifying the servicing lender at any time.
What if the amount of my reverse mortgage is not enough to completely pay off my current mortgage?
Since a reverse mortgage must be a 1st lien on your property, any existing mortgages and liens on your home must be paid in full. However, you can use savings or other sources of cash combined with your reverse mortgage proceeds to pay off all liens on the property at closing.
If interest keeps accruing on my reverse mortgage over time, doesn’t it become very expensive?
It depends on how you look at it. A reverse mortgage has no monthly payments, so as interest and fees accrue, your loan balance goes up over time, and your savings account stays the same. With a traditional loan, your loan balance would not go up, but you would be making monthly payments, so your savings account would go down over time.
If my spouse is not 62 years old yet, can we qualify jointly for a reverse mortgage?
No. All borrowers must be at least 62 years old at the time of closing, however in certain circumstances there are ways of managing this situation safely for both. Contact your Reverse Mortgage Specialist for more details.