FAQs About Reverse Mortgages

Reverse MortgagesAt Panaggio Law, we provide legal services for every stage of your family's growth, from prenuptial agreements through estate planning and retirement. Many senior citizens and homeowners with high equity in their homes are finding that reverse mortgages are a convenient way to meet their monthly financial needs, by pulling the equity from their home.

The financial advantages of not having to repay a reverse mortgage home equity loan can be substantial. We can provide you with complete information about reverse mortgages, including referring you to mortgage banking institutions that can finance the loan.

We invite you to learn more about reverse mortgages on this page. The information provided here is not legal advice about your specific circumstances. Give us a call today to discuss your specific needs with an experienced attorney.

What Are Reverse Mortgages Exactly?

A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is "reversed." Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Below are some common questions asked by consumers about reverse mortgages.

What Are Your Payment Plan Options?

You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these. The most popular option — chosen by more than 60 percent of borrowers — is the line of credit, which allows you to draw on the loan proceeds at any time.

My Understanding Is That The Unused Balance In The Line Of Credit Option Has A Growth Feature. Does That Mean I'm Earning Interest?

No, you're not earning interest like you do with a savings account. The growth factor is taking into consideration that your home has appreciated in value over the past 12 months and that you are one year older. And just to clarify, the growth feature only applies to the FHA Home Equity Conversion Mortgage Program.

How Much Money Will I Get?

No matter which reverse mortgage product you choose, the amount of funds you are eligible to receive will depend on your age (or the age of the youngest spouse in the case of couples), appraised home value, current interest rates and the lending limit in your area. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.

Does My Home Qualify?

Eligible property types include single-family homes, two to four unit properties, manufactured homes (built after June 1976), condominiums and townhouses. In general, co-ops are not allowed. Only the financial freedom "cash account" program is available on co-ops in New York City.

How Can I Use The Proceeds From A Reverse Mortgage?

The proceeds from a reverse mortgage can be used for anything, whether it's to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, retire existing debts, buy a new car or take a "dream" vacation, cover property taxes, and prevent foreclosure.

Are There Any Special Requirements To Get A Reverse Mortgage?

As long as you own a home, are at least 62, and have enough equity in your home, you can get a reverse mortgage. There are no special income or medical requirements.

What If I Have An Existing Mortgage?

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.

For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off all the existing mortgage and still have $25,000 left over to use as you wish.

What Is The Service Fee Set-Aside?

Under most reverse mortgage programs, you will be charged a monthly servicing fee that ranges from $30 to $35 to manage your account once the loan closes. The SFSA is an estimate of what the total servicing fees will be over the life of the loan, by multiplying your life expectancy (converted from years into months) multiplied by either $30 or $35.

Although it's not considered a closing cost, the SFSA can equal several thousand dollars, which is deducted from your available loan proceeds. You do not have access to that money, nor do you earn interest.

Will I Lose My Government Assistance If I Get A Reverse Mortgage?

A reverse mortgage does not affect regular social security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local area agency on aging or a Medicaid expert.

Why Do I Need To Get Counseling?

Counseling is one of the most important consumer protections built into the program. It requires an independent third party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage.

You can seek counseling from a local HUD-approved counseling agency, or a national counseling agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), and Money Management International (877-908-2227). Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone.

When Do I Pay Back My Loan?

No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.

Contact our office to discuss your reverse mortgage loan needs with an experienced lawyer. We are ready to be your complete family law firm.