What are the qualifications of a reverse mortgage?
To qualify, you must be 62 years or older, own your home, and occupy it as your primary residence.
When do I pay the loan back?
Payment is due when the borrower sells the home, passes away, or does not pay taxes and insurance.
If the loan amount exceeds the value of my home, do I have to repay the difference?
No. Because they’re non-recourse loans, backed by federal insurance, the lender can never collect more than the loan’s value.
What can I use reverse mortgage funds for?
It’s your choice! Many people choose to: pay off debt, make home improvements, or increase monthly cash flow.
How is the amount you can borrow determined?
Reverse mortgages are based on the age of the borrower — only those 62 and older can apply, and the older you are, the more of your home's equity you can access to pay off other debts and improve cash flow. And while there's no perfect formula for determining how much you can get with a reverse mortgage, the rule of thumb is you're eligible to convert 50% of your available equity as a reverse mortgage. So, if you own a home valued at $400,000 with a $100,000 mortgage, you should be able to convert $150,000 as a reverse mortgage.
What risks are involved if I take a reverse mortgage?
Risks are minimal and neither the original borrowers or heirs will ever owe more on a reverse mortgage than the value of the mortgaged property. For example, after 20 years of a $150,000 reverse mortgage the amount owed on the house rises to $325,000 yet the property sells for $300,000. The remaining obligation is paid by the Federal Housing Authority since all reverse mortgages are FHA-backed. The cost of that insurance is added into the product on day one.
What are the costs involved for a reverse mortgage borrower?
Like any mortgage product, a reverse mortgage has closing costs. Always check the documents and know what you're paying for. At American Financing, we generally don't charge an origination fee, which means most of the costs are for fixed, mandatory items such as title and government fees. In most cases, borrowers should expect to pay between $2,500 and $3,000, all of which can be rolled into the loan.
How do interest rates impact a reverse mortgage loan?
Reverse mortgage interest rates tend to track LIBOR and adjust annually if you're on an adjustable product like a reverse mortgage that includes Home Equity Line of Credit for withdrawing funds. Otherwise, reverse mortgages can also be structured with a fixed rate.
What is reverse mortgage counseling and who can provide it to me?
Attending a counseling session (either in person or over the phone) is a requirement to be eligible for a reverse mortgage. The session is about an hour long, and it includes review of loan terms, loan interest rates, your income and expenses, etc. The purpose of counseling is to ensure a reverse mortgage is the right option for you. To find a HUD-approved counselor, visit the HUD-Approved Reverse Mortgage Advisors page.
What if I outlive the loan?
The loan only becomes due when you default on tax or insurance payments, or if you discontinue basic maintenance of the home. Otherwise, you can continue living in the home as long as you’d like without making any payments toward the loan.