Your Financial Future:
9 Things You Should Know About Reverse Mortgages
1. A reverse mortgage is a special type of home loan that allows a homeowner to convert a portion of his or her home equity into cash.
2. To qualify for a U.S. Department of Housing and Urban Development (HUD) reverse mortgage, you must: be a homeowner;
- be at least 62 years of age;
- own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan;
- live in the home; and
- receive consumer information from HUD-approved counseling sources prior to obtaining the loan (call 1-800-569-4287).
3. For your home to be eligible for a HUD reverse mortgage, it must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums require special Federal Housing Administration (FHA)-approval.
4. A reverse mortgage differs from a bank home equity loan in that it pays you and is available regardless of your income.
5. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
6. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.
7. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.
8. Do NOT pay an estate-planning service to find a reverse mortgage. HUD-approved counseling agencies can provide this information at no or minimal cost. Call the toll-free number 1-800-569-4287 to locate a HUD-approved agency near you.
9. You have five options for receiving payments:
- Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term - equal monthly payments for a fixed period of months selected.
- Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
- Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.