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Planning > Reverse Mortgage > Frequently Asked Questions (FAQs)

What is a reverse mortgage? | return to top

  • A reverse mortgage is a loan against your home that you do not have to pay back for as long as you live there.
  • No matter how this loan is paid out to you, you don't have to pay anything back until you die, sell your home, or permanently move out of your home.
  • To be eligible for a reverse mortgage, you must own your own home and be 62 years of age or older. Essentially, it is an insured and effective way to access the equity you've built up in your home and turn that equity access into cash flow for any purpose you desire.

Why would I need or want a reverse mortgage? | return to top

  • When you were making plans for your retirement, you assumed that there would be enough monthly income from your retirement portfolio, possibly supplemented by Social Security and pensions.
  • Life changes may be preventing you from living at the level you had forecast and a reverse mortgage can provide the additional cash flow to fill in that shortfall or bring you the additional cash flow to handle the unanticipated events that can disrupt your future returns from your retirement plans.
  • Typical usage of a reverse mortgage varies from paying off existing "forward" mortgages, excessive credit card debt, medical debts, in-home companion or health care capabilities. Since most folks are now saying they intend to remain in their home for as long as they are capable, the money from the reverse mortgage could be used for home improvements.
  • There are many other uses for a reverse mortgage and they are not always for the house rich, cash poor client. Seek advice from your financial planner to better understand how the reverse mortgage can be a great estate planning and cash flow vehicle.
  • Also, recent housing legislation will allow for folks looking to downsize to be able to use a reverse mortgage as a vehicle to purchase a smaller property of real estate.
    • Instead of using all of the proceeds from the larger, more expensive home, the client could put down roughly half the value and finance the other half of the loan with a reverse mortgage.
    • Instead of making regular monthly mortgage payments, the new FHA bill will allow that no payments will be required on the financed portion which leaves more cash in the retirement account instead of tied up again in the home.

Do I qualify for a reverse mortgage? | return to top

  • You qualify for a reverse mortgage if you are 62 or older and have some equity in your home.
  • How much equity depends on your age, where you live and the current expected rates.
  • The older you are and the less you owe on your home will yield more equity access as far as cash flow is concerned.
  • Certainly, if your home is owned free and clear, you would be able to secure a reverse mortgage as long as your home is a property that is typical for your area and meets FHA guidelines.

How much money can I get? | return to top

  • Again, how much money you can get depends upon your age, your current home value, your county of residence and the current expected rates.
  • The older a person is and the more valuable the home, the more access to equity they have.
  • The lower the expected rates, the more access to equity and conversely, the higher the rate or the younger the borrower results in less access to equity.
  • Typically, folks can get 40 to 70% of the value of their home in equity access and that would include paying off any existing "forward" mortgage.

How is a reverse mortgage different from a bank home equity loan? | return to top

  • Simple, a reverse mortgage does not need to be paid back as long as you remain in the home and a home equity loan will require monthly payments until the loan is paid off.
  • In most cases where cash flow is of short supply, a home equity loan only adds to the monthly cash flow shortage and is a short term solution.
  • Your home could be foreclosed upon if you were not to make your home equity payments, but since you don't make payments with a reverse mortgage, you can't be asked to leave as this is a non-recourse loan.
  • A non-recourse loan means you can never owe MORE than the market value of the home, regardless of how much money you've used with the reverse mortgage.
  • FHA insures their loans with mortgage insurance to protect the homeowner from this happening.

Can my home be taken away if I outlive the loan? | return to top

  • Your home can not be taken away from you if you outlive your loan as long as your taxes and insurance are paid and the property is kept up and maintained.
  • You remain title holder the entire time the loan is in process.

Will I still have an estate that I can leave to my heirs? | return to top

  • In most cases, there is some equity left for heirs, but it depends upon how long the loan is in place and how much of the equity is used during the life of the loan.
  • For someone that just want to get rid of their current "forward" mortgage to get rid of monthly mortgage payments, they can leave any remaining equity in the credit line function of the reverse mortgage that grows over time at prevailing rates.
  • That credit line will never decrease in value if left alone and can yield significant returns for any purpose whatsoever.
  • A reverse mortgage is not marketed nor was designed as a short term loan. Even though the home values have recently dropped in most areas, the value trends say that when home values start to increase again, more estate value will remain for heirs.

Should I use a financial or estate planner to find a reverse mortgage? | return to top

  • At Wealth One, Inc., we've come to realize that most financial planners and estate planners are not that well versed in reverse mortgages, so it depends on who you seek advice from.
  • We have also come to realize that once these folks fully understand how they work and their potential capabilities as a supplement to retirement and estate planning, they then include them as possible tools in their processes.
  • The purpose of Wealth One, Inc. is to connect folks to best-in-class services in the area, whether they include reverse mortgages or other types of eldercare planning tools.
  • Please see our Financial Planning recommendation and trusted team member.

How do I receive my payments? | return to top

  • You can receive the equity access in varying ways.
  • Most folks put all their available cash from the reverse mortgage into the credit line function, where they have access to their money anytime they need it but when they aren't using it, it grows over time at prevailing rates. (The current return is 4.5% but it can vary monthly).
  • Other folks take the money as lifetime tenure payments which are monthly payments they get each month for as long as they live in the home, regardless of the future home value or how much money has been paid out.
  • Other ways to receive the money are lump sums or fixed monthly payments called term payments.
  • A borrower can select a variation of these and can change their proceeds method at any time with a nominal fee but you are not locked into this method when you put it into place.

What is reverse mortgage counseling? | return to top

  • Reverse mortgage counseling is required by FHA and is done by a certified credit counseling agency that has understood and passed a rigorous national exam administered by AARP.
  • These counselors use loan analysis and comparison software to give you an unbiased and comprehensive advice as well as share with you the other alternatives to a reverse mortgage such as selling or downsizing or moving into an apartment or with family members.

What is the truth about allegations of "deception" or "bad press" regarding reverse mortgages and annuities? | return to top

  • Some unscrupulous reverse mortgage agents are securing reverse mortgages for their clients with the hope that the large lump sum of money made available by the reverse mortgage be put into annuities for higher commission capabilities, kind of a double whammy.
  • They get the sale of the reverse mortgage and then also get the sale of the annuity, all the while keeping you from accessing the cash you were short on to begin with.
  • Not all annuity sales are bad and in some circumstances, a reverse mortgage would be an acceptable tool for delivering cash for the annuity purchase.
  • Wealth One, Inc., the National Reverse Mortgage Lenders Association and HUD have all made their views public that the 2 do not make acceptable partners without serious professional advice and warnings.
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