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About Reverse Mortgages
Your
income or income level is not a factor in getting
a reverse mortgage.
If
you are over the age of 62 years old and you have
a low loan to value, you could easily qualify for
a reverse mortgage.
Your
children will know your secure! |
Key
Features of Reverse Mortgages
• No
income or health requirements
•
Minimal
credit verification requirements
•
Limited
paperwork
•
No monthly
mortgage payments
•
Loan proceeds
may be tax-free
•
Loan proceeds
do not affect Medicare or Social Security
•
Supplemental
Security Income (SSI) and/or Medical/MediCal
are usually not affected
•
Repayment
is not due until the last borrower sells the
home or permanently leaves the home
•
Reverse
mortgages are "non-recourse," which
means that you, your heirs, or your
estate will not owe more than the
appraised value of the home at the time repayment
is due |
WHAT
YOU CAN BORROW
How
much you can borrow is based on three factors: life
expectancy, the value of your home, and equity of
your home. An easy way to look at life expectancy
is to compare the reverse mortgage to a life insurance
policy. Life expectancy for a reverse mortgage is
figured exactly the opposite of life insurance.
The insurer wants you to make enough payments on
the policy to make a profit before having to pay
the death benefit. The insurer does not know how
long you will live, but knows that by writing thousands
of policies, the average life expectancy of the
insured is predictable.
 With
a reverse mortgage, older is better. Since the lender
is paying you until you move or die, the older you
are, the shorter your remaining life. The lender
can pay more over your remaining years since there
are fewer years remaining. Based on this, if you
are not at least 62 years old, you are not eligible
for a reverse mortgage. The average life expectancy
is too great for people under age 62 for banks to
take the risk of loaning money on a reverse mortgage.
Just as Social Security eligibility is changing
as people live longer, the minimum age for a reverse
mortgage may change. If the age requirement is not
raised as life expectancy increases, the amount
that can be borrowed will have to be lowered.
The
second factor is the value of your property. Just
as with a standard mortgage, the loan amount will
be limited by the value of the property. The loan-to
value ratio will be lower for a reverse mortgage,
since your debt is increasing over time rather than
decreasing as it would with a standard loan.
Your
property's value may be even more important if the
reverse mortgage has no limit. FHA limits the amount
that you can borrow, just as it does for standard
mortgages. Some lenders offer no-limit reverse mortgages.
If your home is worth a million dollars and you
want the biggest loan you can get, FHA is not for
you.
The
third factor is your equity. If you have $100,000
equity, you will not be able to borrow as much as
you would if you had $200,000 equity. This is obvious
and works the same way as a standard loan. The difference
with some reverse mortgages is that the increasing
value of your home is automatically considered.
Everyone
knows that housing prices have increased over the
years. Prices may fall temporarily, but the general
trend is up. You would be hard-pressed to find a
home today that is valued at less than it was ten
or twenty years ago.
If
you have a standard mortgage, you can refinance
as the value of your home increases and borrow more
money. With certain reverse mortgage loans, the
increase in value is built in the loan. the amount
you can borrow keeps increasing without the need
for refinancing.
Determining if a
Reverse Mortgage is Right for you
Before
exploring the details of a reverse mortgage, it
is helpful to build a framework of your particular
needs and goals. By having a clear understanding
of your current situation and future options, you
can more easily identify if a reverse mortgage is
an appropriate and viable financial solution for
you.
Self-Assessment
Questionnaire
Completing the worksheet below will help you assess
your financial situation or financial issues you
may be faced with now or in the future. These questions
cover some of the common reasons reverse mortgages
are used be seniors today.
If
you answered "YES" to any of the questions
above you may be a good candidate for a reverse
mortgage.
Typical Uses of Reverse Mortgage Proceeds
Because
there are no restrictions on the use of funds received
after you have paid off any other mortgage debt
you may currently have on your home, reverse mortgages
can offer you a monthly source of funds to help
provide you more choices, financial control, and
flexibility in retirement years.
• |
Paying
for everyday expenses |
• |
Making
home repairs and improvements |
• |
Covering
medical expenses |
• |
Purchasing
long-term care insurance |
• |
Establishing
trusts |
• |
Helping
to financially support family members - funding
grandchildren's college tuition |
• |
Paying
off loans or bills |
• |
Maintaining
or improving your quality of life |
• |
Rewarding
yourself with something special - buying a new
car or taking a vacation |
Common
Reverse Mortgage Questions
| Question: |
What
is the age qualifications for a reverse mortgage? |
| Answer: |
Reverse
mortgages are for homeowners at least 62 years
of age. |
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| Question: |
Is
it possible to get a reverse mortgage if there
is already an existing mortgage on the home? |
| Answer: |
Yes,
but any existing mortgage must be paid off when
the reverse mortgage closes. The funds from
the reverse mortgage can be used for that purpose. |
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| Question: |
Are
there any types of homes that do not qualify
for an American Financing Reverse Mortgage? |
| Answer: |
The
property must be your primary residence. Typically,
vacation homes or other secondary residences,
rental properties, or more than four dwelling
units are not eligible but speak with your loan
specialist for the most current eligibility
guidelines. Mobile or manufactured homes may
be eligible depending on loan product. |
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| Question: |
Does
a home in a "living trust" qualify
for a reverse mortgage? |
| Answer: |
In
most cases, the answer is yes. As a part of
the loan process, you will need to provide a
copy of the trust or Certification of Trust
for review by the lender and title company. |
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| Question: |
Is
there any tax liability for the reverse mortgage
proceeds? |
| Answer: |
No,
funds received from a reverse mortgage are generally
categorized as loan advances and not taxable
income. Consult your tax advisor for more information. |
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| Question: |
Can
the interest charged on the loan principal be
deducted for tax purposes? |
| Answer: |
The
interest that accrues on your loan is generally
deductible when the loan is repaid, which occurs
when the last borrower permanently leaves the
property. Consult your tax advisor for more
information. |
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| Question: |
How
do the proceeds from a reverse mortgage affect
Social Security, Medicare or pension benefits? |
| Answer: |
The
benefit from a reverse mortgage typically does
not affect these benefits. Consult your financial
advisor or local senior agency for more information. |
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| Question: |
Will
a reverse mortgage affect SSI or Medicaid benefits? |
| Answer: |
Generally
a reverse mortgage will not affect these or
most other means tested benefits as long as
the monthly cash advances are fully spent every
month and not accumulated. However, programs
do vary by state, so we strongly encourage you
to confirm with your local senior services agency
that your benefits will not be affected. |
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| Question: |
What
are the costs associated with a reverse mortgage? |
| Answer: |
Depending
on the reverse mortgage program you choose,
you may pay an origination fee, a mortgage insurance
fee and actual closing costs, including charges
by the title and/or escrow companies. All of
these costs can be financed as part of the initial
loan advance.It is also customary for the lender
to collect a deposit for the appraisal at the
time of application. This is the only lender
fee you will be required to pay out-of-pocket. |
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| Question: |
What
is the amount owed when repayment is due? |
| Answer: |
You
must repay the money that you have received
plus accumulated interest and service fees (when
applicable) up to the appraised market value
of the home. The repayment is generally due
within 6 months of the maturity event. |
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| Question: |
Can
I owe more than my home is worth? |
| Answer: |
A
reverse mortgage is a "non-recourse"
loan, which means that you, your heirs, or your
estate cannot be required to repay more than
the appraised market value of the home at the
maturity of the loan. If the loan balance exceeds
the value of the home, you, your heirs, or your
estate will only be obligated to repay an amount
up to the current appraised value of the property. |
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| Question: |
Does
the lender take the title of the home? |
| Answer: |
A
reverse mortgage is only a lien against the
property; therefore, the title will stay in
your name. |
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| Question: |
If there are no monthly mortgage payments,
am I responsible for any other expenses related
to the home? |
| Answer: |
You
are required to pay your property taxes, homeowners
and flood (if required) insurance premiums,
and other expenses necessary to maintain the
home. |
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|
| Question: |
When
does the loan need to be repaid? |
| Answer: |
Loan
repayment is triggered when the home is sold
or is no longer occupied as your primary residence.
In a case of more than one borrower, repayment
is triggered when the last borrower permanently
moves out. Until one of these events take place,
the last borrower may live in the home and not
make any monthly mortgage payments to the lender. |
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| Question: |
Will
my heirs have to sell the property to repay
the loan? |
| Answer: |
No,
the loan can be repaid by refinancing the existing
reverse mortgage with a standard mortgage loan. |
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| Question: |
How
will a reverse mortgage affect the future sale
of the home? |
| Answer: |
The
impact of a reverse mortgage is no different
than that of a purchase or refinance mortgage.
Repayment of the mortgage is due upon sale of
the home. |
Scenarios of How a Reverse Mortgage May Be Useful
The
following scenarios are examples of how a reverse
mortgage might be useful:
Reverse
mortgage can provide extra needed income.
The
Need: A 75 year old widow has a
$12,000 annual income from Social Security and pension
benefits. Although this was sufficient income initially,
over the years unexpected expenses have caused her
to cut back on some essentials and pay for other
items on credit cards. She would like to pay off
her credit card bills that have grown due to her
income not meeting her monthly expenses.
Solution:
With a reverse mortgage, she would be able
to receive additional monthly income without incurring
additional mortgage payments or putting her house
on the market. Her $450,000 home could generate
a total benefit of $277,833 resulting in a monthly
income of $1,524.
Reverse mortgage could
help couples handle medical expenses.
The
Need: A
couple in their mid-seventies is enjoying their
retirement, when unexpectedly the husband suffers
a major stroke. Fortunately, he survives but requires
very costly 24-hour in-home care. With little extra
in their savings, his wife faces the possibility
of having to put her husband in a skilled nursing
facility or being forced to spend down their savings
to qualify for Medicaid.
Solution:
Using a reverse mortgage, they could access the
equity from their $650,000 home. They could convert
this equity into $90,000 per year of tax-free cash,
without assuming payments or giving up their home.
End
Result: From a line of credit, the wife would
be able to pay the $4,000 a month for in-home care
and would not have to sell their home or put her
husband in a skilled nursing facility.
Reverse
mortgage can provide help for adult son.
The
Need: John
and his wife, Kathleen, live in California and his
72 year old mother lives in the house he grew up
in Chicago. As a long distance caregiver, John visits
as often as possible between business trips and
vacations to help his mother maintain her older
home. She receives a modest income from Social Security
and her CD's. Recently, John has been sending her
$500 a month to help out with the increased health
care costs but he can't afford to replace her leaky
roof. Now, John's daughter has been accepted to
a university back east and he is faced with tuition
expenses for his own family. John feels caught in
the middle trying to care for all of his family
members. His mother owns her home free and clear
and although she tells him she wants to leave it
to him, he would prefer that she live comfortably
and not have to cut back on essentials.
Solution:
A reverse mortgage on his mother's home could provide
monthly income for his mother and pay for the needed
repairs for the home. With a reverse mortgage, her
$250,000 home could generate $134,000 in total benefit
or a monthly income of $915.
End
Result: The additional income would allow John's
mother to pay for her medication and have a new
roof installed in her home. John and Kathleen would
have the comfort of knowing that his mother is living
comfortably in her home and meeting day-to-day living
expenses. In addition, they could now apply the
$500 a month John previously sent to his mother
towards their daughter's college expenses.
Reverse mortgage can
provide funds for home improvement.
The
Need: A
76 year old husband and his 74 year old wife bought
their retirement home in Las Vegas and have lived
there for 9 years. Their combined income is $22,000
annually from Social Security and pension benefits.
This is sufficient income to cover their expenses
and a few extra, but now the house needs some major
work. The air conditioning needs to be replaced
and there is a major plumbing problem involving
re-piping the house. Their credit is average but
they do not like the prospect of incurring additional
credit card debt and the extra monthly payments.
Solution:
With a reverse mortgage, they would be able to receive
the money they needed without incurring additional
payments. Their $375,000 home could generate a benefit
amount of $167,000 to pay for their repairs.
End
Result: The money from the reverse mortgage
would allow them to pay for their repairs, take
a cruise to Bermuda and leave $100,000 in their
line of credit for future emergencies.
Reverse
mortgage can provide funds to choose quality care
environment for spouse.
The
Need: An
82 year old man has been caring for his 80 year
old wife who has been suffering from Alzheimer's
disease for over a year. Even though he has assistance
from family, friends and professional caregivers,
he is increasingly concerned for her safety since
he is unable to provide the level of care she needs
around the clock. upon the advice of her physician
and with the support of their children, he is considering
the option of having her live in a secure Memory
Care residence where she will receive the 24-hour
care and supervision she requires. However, their
monthly income is currently not enough to cover
the additional expense of $4,000 a month. His only
option would be to sell the home and move in with
their son to be able to pay the monthly fee for
her to live in a safer environment.
Solution:
With
a reverse mortgage, he would be able to turn the
equity in their $600,000 home into a $223,526 line
of credit.
End
Result: The money from a reverse mortgage could
make it possible for the husband to choose a quality
Memory Care community for his wife without having
to sell their home. Since this would reduce the
stress of caring for his wife, he would be able
to enjoy more of the time they spend together. It
also would free up the time of his family and friends
who had been assisting with her care, which could
result in more rewarding time spent with them.
Reverse
mortgage can help fund grandchildren's college education.
The
Need: An
active senior couple, aged 72 and 74, would like
to help with their grandchildren's future college
expenses by adding to funds in existing 529 plans.
Tax laws allow them to contribute $10,000 each ($20,000
for the couple) for each grandchild per year, for
a total of $80,000. They want to do this without
disturbing their current income.
Solution:
Using a reverse mortgage, they could access funds
from their $950,000 home. They could convert their
equity into $475,000 of tax-free cash, without assuming
payments or giving up their home.
End
Result: From a line of credit they would be
able to contribute $20,000 each year to their grandchildren's
529 funds, reduce the taxable portion of their estate,
and maintain their annual income.
These
are only hypothetical examples. A reverse mortgage
specialist will be able to discuss your specific
circumstances at American Financing and provide
you with information about reverse mortgage options
which may be useful to you.
Our
mortgage consultants at American Financing can help
you find the best solution for a loan.
Call
(303) 695-7000 and
talk with a mortgage specialist free.
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