Learn About Reverse Mortgages
 
Many homeowners 62 and older are finding themselves in the position where they have loads of home equity but little monthly income.  They fear that they might have to sell their homes.  But, they needn't put up that For Sale sign just yet.  These homeowners are able to hold on to their homes by taking out reverse mortgages on their property.

What is a reverse mortgage?

With a reverse mortgage, homeowners 62 and older, can take the equity out of their homes without having to make monthly payments to the bank.  The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (i.e. into aged care).  Then, the mortgage holder or the heirs have to sell the property or use other funds to pay off the loan if they want to keep the house.

Reversemortgage.org offers a question and answer platform that many find helpful.  Here are some of the most commonly asked questions and answers:

What are the Payment Plan Options?

The proceeds of the reverse mortgage can be taken all at once as a lump sum, or as long as the homeowners lives in the home, as a line of credit, or a combination of these.

How much money will the homeowner get?

No matter which reverse mortgage product is chosen, the amount of funds one is eligible to receive depends on 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 one is and the more valuable the home (and the less owed on the home), the more money the homeowner can get.

 

How can the proceeds of a reverse mortgage be used?

The proceeds can be used for anything.

 What are the Special Requirements to get a Reverse Mortgage?

As long as one ones a home, is at least 62, and has enough equity in the home, one can get a reverse mortgage. There are no special income or medical requirements.

What if the homeowner already has an existing mortgage?

A homeowner may qualify for a reverse mortgage even if he/she still owes money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. The existing mortgage can be paid off with a reverse mortgage, money from savings, or assistance from a family member or friend.

 

For example, let's say $100,000 is owed on an existing mortgage. Based on age, home value, and interest rates, the homeowner may qualify for $125,000 under the reverse mortgage program. Under this scenario, he/she will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as however the homeowner wishes.

 

If, however, the homeowner only qualifies for $85,000, then he/she would need to come up with $15,000 from his/her own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, the homeowner won't have a monthly mortgage payment anymore.

 

If the homeowner finds him/herself  in a deficit situation where he/she doesn't have enough money to pay off the existing mortgage, he/she may use funds from a grant or gift from a family member or friend to cover the gap, but a new debt obligation (i.e., loan) cannot be incurred.

 

How is Government Assistance affected by a Reverse Mortgage?

 

A reverse mortgage does not affect regular Social Security or Medicare

benefits. However, if the homeowner is on Medicaid, any

reverse mortgage proceeds that are received must be used immediately. Funds that are retained would count as an asset and could impact Medicaid eligibility. 

 

For example, if the homeowner receives $4,000 in a lump sum for home repairs and spends it all the same calendar month, everything is fine. Any residual funds remaining in a 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, one would be ineligible for Medicaid. To be safe, the homeowner should contact the local Area Agency on Aging or a Medicaid expert.

When is the Loan Paid Back?

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

Who Should Not Consider a Reverse Mortgage?

Because of the upfront costs associated with a reverse mortgage, if the homeowner intends to leave the home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by the county government or a local non-profit to repair the home, or a tax deferral program, if he/she is having problems paying property taxes. Also, if the hoemowner wants to leave the home to children, then  other options should be considered, because in many cases, the home is sold to pay back a reverse mortgage.
 

If you are interested in a reverse mortgage, please call us at 888.363.3423
 
Greater Equity.com, a Clarion Mortgage Capital Originator.  Clarion Mortgage Capital Inc., a Real Estate Broker is licensed by the CA Department of Real Estate, License Number 01245811.