| Q.
What is a reverse mortgage? |
A.
A reverse
mortgage is a loan that enables senior homeowners, age 60
and older, to convert part of their home equity into tax-free*
income-without having to sell their home, give up title to
it, or make monthly mortgage payments. The loan only becomes
due when the last borrower(s) permanently leaves the home.
* Consult Tax Advisor. Not all products available in all
states.
|
| Q.
Can the borrower's current income influence
their ability to get a reverse mortgage? |
A.
No. Since
reverse mortgage borrowers need not make monthly repayments,
there are no income qualifications.
|
| Q.
Borrowers have heard that with a reverse
mortgage the lender would own their home. Is this true? |
A.
Itīs absolutely
false. The borrower retains title to the property. The reverse
mortgage lender is merely extending a loan to the borrower.Because
the homeowners retain title, they remain responsible for the
payment of property taxes, insurance, utilities, home maintenance,
and other expenses − just as they would with a standard
first mortgage or home equity loan.
|
| Q.
The borrower still owes money on a first
or second mortgage. Can they still get a reverse mortgage? |
A.
Yes. The
borrower may be eligible for a reverse mortgage even if they
still owe money on a first or second mortgage depending on
the outstand balance of the loans and the value of the home.
The funds they would receive in the reverse mortgage would
be used to pay off whatever existing mortgages the borrower
has on the property.
|
| Q.
Would a home that is in a "living trust"
be eligible for a reverse mortgage? |
A.
Yes. In
most cases a homeowner who has put his or her home in a living
trust can usually take out a reverse mortgage. A review of
the trust documents would be made by the reverse mortgage
lender to determine if anything in the living trust would
be unacceptable.
|
| Q.
What has to be repaid when the loan
becomes due? |
A.
When the
last surviving borrower permanently moves out of the home
or dies, the reverse mortgage loan becomes due. The reverse
mortgage principal, interest charges, service fees, and any
closing costs are paid from sale of the house. Itīs important
to remember that the borrower can never owe more than the
homeīs appraised value* at the time of repayment.
* As determined by an approved appraiser.
|
| Q.
If a borrower takes a reverse mortgage,
will they still have an estate that they can leave to their
heirs? |
A.
When a borrower
sells their home or no longer uses it for their primary residence
the lender must be prepaid for the cash received from the
reverse mortgage, plus interest and service fees. Any remaining
equity belongs to the borrower or their heirs. Itīs important
to remember that the borrower can never owe more than the
homeīs appraised value* at the time of repayment.
* As determined by an approved appraiser.
|
| Q.
Must the heir or the last surviving
borrower sell the property to repay the reverse mortgage loan? |
A.
No. Repayment may be accomplished by refinancing the reverse
mortgage with a traditional "forward" mortgage loan,
or through the use of other assets.
|
| Q.
Other
than repaying the principal and interest, what kinds of fees
are involved in a reverse mortgage? |
A.
Most reverse
mortgages have an application fee (which may cover the cost
of a credit report and an appraisal), an origination fee,
closing costs, insurance, and a monthly servicing fee. These
charges can be paid by the reverse mortgage itself, making
them no immediate burden to the borrowers; the costs are added
to the principal and paid at the end, when the loan becomes
due.
|
| Q.
Borrowers must meet with an unbiased
counselor before completing their reverse mortgage application.
What does that accomplish? |
A.
This is a federally
mandated feature of the reverse mortgage process and is designed
for the borrowerīs protection. The counselor, who is from
an independent government-approved housing counseling agency,
explains in detail the pros and cons of all your reverse mortgage
alternatives. He or she will discuss a reverse mortgageīs
costs and financial implications, should tell the borrower
about any government or nonprofit programs for which they
may qualify, and advise the borrower on any proprietary reverse
mortgages that may be available in their area. Prepare your
borrowers and discuss alternatives before counseling is scheduled.
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