Reverse Mortgage FAQ
It’s not surprising that there is so much confusion about reverse mortgages. The process can be difficult to understand, and it’s important to have all of your questions answered before you make a decision. We’ve compiled this list of reverse mortgage FAQs to help you get answers you’re looking for. These are the questions that our reverse mortgage originators are most frequently asked:
- What is a reverse mortgage?
- How does a reverse mortgage work?
- How will the reverse mortgage loan eventually be repaid?
- What are my payment obligations with a reverse mortgage?
- What can’t I use the money for? Are there any limitations on my funds?
- What happens if I pass away during my reverse mortgage loan before I receive the full amount of my loan?
- What happens if my home gains value?
- When does the reverse mortgage loan become due?
- Will a reverse mortgage affect my Social Security, Medicare, or pension benefits?
- Will I still own my home with a reverse mortgage?
1. What is a reverse mortgage?
An FHA reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a loan insured by the Federal Government’s Federal Housing Administration (FHA). It is a financial instrument that enables you to turn the equity in your home into tax-free cash. To qualify you must be at least 62, own your own home, and occupy it as your primary residence. Learn more about What a Reverse Mortgage Is.
2. How does a reverse mortgage work?
Reverse mortgages allow a homeowner to borrow equity. Instead of making payments to the lender, the lender makes payments to the borrower. Learn more about How a Reverse Mortgage Works.
3. How will the reverse mortgage loan eventually be repaid?
Lenders get repaid when the owner either moves or dies and the home is sold. HECMs are insured by the Federal Housing Administration, so if the eventual sale price of the home falls short of the loan amount, the FHA pays the lender the difference.
4. What are my payment obligations with a reverse mortgage?
You will not have a mortgage payment. However you must continue to pay your:
- Property taxes
- Home insurance
- Basic home maintenance
5. What can’t I use the money for? Are there any limitations on my funds?
There are NO limitations on how you use the money from your reverse mortgage. These funds can be used for anything. Common uses include:
- Paying off existing mortgages (required)
- Paying for medical bills
- Paying other debts, credit cards, and bills
- Purchase a new or second home
- Home repair and improvement expenses
- Paying off property taxes and home insurance
- Increasing monthly cash flow
- Supplementing your retirement portfolio
- Deferring Social Security payments to qualify for maximum allowance
- Travel and vacation
6. What happens if I pass away during my reverse mortgage loan before I receive the full amount of my loan?
If you pass away during the payment of your loan, any part of your loan that has not already been sent to you, remains as equity in your home and therefore part of your estate. However, a reverse mortgage becomes immediately due upon death. Your heirs are given about twelve (12) months to sell the home in order to repay the loan. They also have the option to keep the home by paying off the reverse mortgage balance. Otherwise, when the home is sold the proceeds pay off the reverse mortgage first and any remaining money goes to your heirs.
7. What happens if my home gains value?
If your home gains property value, your equity will increase. If your home is sold and the reverse mortgage is paid back, the leftover funds go back to you or your heirs. You may also have the option to refinance into a traditional mortgage and pull out the additional equity in your home.
You may also be wondering what happens if the loan ends up exceeding the value of your home. Will your heirs be responsible for your debt? No, your heirs will NOT be responsible. A Reverse Mortgage is considered a non-recourse loan. After the last borrower leaves the home, the proceeds from the sale of the home is the ONLY asset that can be taken to pay the loan’s balance. If the loan balance ends up surpassing the value of the home, the difference is covered by the Federal Housing Administration’s (FHA) insurance fund. However, if your heirs wish to keep the home, they may choose to do so by paying the loan in full.
8. When does the reverse mortgage loan become due?
Your reverse mortgage becomes due when the last borrower:
- Sells or transfers the home
- Passes away
- Does not pay the home’s property taxes or insurance
- Abandons the home permanently or for more than 12 consecutive months
- No longer occupies their home as the primary and principle residence
- Defaults under the terms of the reverse mortgage
9. Will a reverse mortgage affect my Social Security, Medicare, or pension benefits?
A reverse mortgage is considered loan proceeds and NOT income. Medicaid, Medicare, and SSI may be affected. Please consult a benefits advisor for your specific case.
10. Will I still own my home with a reverse mortgage?
Yes. As long as you maintain your property taxes and home owner’s insurance and otherwise comply with the terms of your loan, you will retain ownership of your home and may live there for as long as you desire.