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What is Reverse Mortgage?
( This is meant for senior citizens )

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A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan. 

Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage.

Investopedia Says:
A reverse mortgage provides income that people can tap into for their retirement. The advantage of a reverse mortgage is that the borrower's credit is not relevant, and is often unchecked, because the borrower does not need to make any payments. Because the home serves as collateral, it must be sold in order to repay the mortgage when the borrower dies (in some cases, the heirs have the option of repaying the mortgage without selling the home).  These types of mortgages have large origination costs relative to other types of mortgages.  These costs become part of the initial loan balance and accrue interest. Senior citizen borrowers with good credit should carefully analyze the options of a more traditional mortgage, such as a home equity loan, against a reverse mortgage.

Example: Roper, age 70, who has retired from his job, owns his home free and clear of liens . His pension is inadequate to pay expenses. He seeks a reverse mortgage that will pay him $200 per month. When he dies, the home is sold and the loan retired.

Q. What is a reverse mortgage?
What is a Reverse Mortgage loan?A. A reverse mortgage is a loan that enables homeowners, age 62 and older, to convert a portion of their home equity into tax-free (Consult your tax advisor) funds–without having to sell their home, give up title to it, or make monthly payments. A reverse mortgage only becomes due once your home is sold or estate is settled.

Q. How much money can I get?
A. The total amount of reverse mortgage funds available depends on several factors including the age of the youngest homeowner, the type of reverse mortgage selected, current interest rates, the appraised value of your home and FHA lending limits for your area. In most cases, the older you are, the more valuable your home, and fewer real estate secured liens (i.e. existing mortgages or home equity loans), all increase the amount of reverse mortgage money you can obtain.

Q. How can I receive payments?
A. Reverse mortgage payments are tax-free (Consult your tax advisor) and can be received in a variety of ways, so a reverse mortgage payout plan can be tailored to fit your needs:*
- Receive the money all at once, in the form of a single lump-sum payout
- Receive equal monthly payments for as long as the borrowers live in the home
- Receive equal monthly payments for a fixed period of time
- Set-up a line of credit to obtain funds at any time until the line of credit is exhausted
- Combine options

* The homeowner must also continue to occupy the home as their primary residence, keep it in good repair, with all taxes and insurance premiums kept up to date, subject to the terms of the mortgage.

Q. How do I qualify?
A. Qualifying for a reverse mortgage is easy. You qualify based on the value of the home (less any real estate liens), age of the youngest homeowner and the current interest rate. Credit score is not considered when qualifying for a reverse mortgage, so almost any homeowner age 62 and over is eligible.

Q. What costs and fees are associated with a reverse mortgage?
A. As closing costs can be paid directly out of the reverse mortgage proceeds, there are no “up-front” funds needed to obtain a reverse mortgage. Like any loan, you will have to pay interest on the principal advanced. You will also be charged a monthly servicing fee for the lender to make cash advances to you, make requested changes in your payout plan and to maintain your reverse mortgage account, etc. A reverse mortgage is different from ordinary loans however in that these costs will not come due until when the loan is paid off. This occurs when the home is no longer the primary residence, at the time you sell your home or your estate is settled, whichever occurs first.

Q. How much cash will I have to come up with for closing costs?
A. As is the case with any mortgage, a reverse mortgage does have closing costs, however there are no “up-front” funds needed to obtain a reverse mortgage because the closing costs are usually paid directly out of the reverse mortgage proceeds. Closing costs can vary, depending on the value of your home and the county it’s located in.

Q. What are the tax consequences of a reverse mortgage?
A. Because the Internal Revenue Service considers reverse mortgage proceeds to be loan advances, and not income, they are not taxable (Consult your tax advisor). It’s always wise to consult with your tax advisor regarding these matters.

Q. If I take on a reverse mortgage, how will it affect my government benefits?
A. Having a reverse mortgage should not affect your Social Security or Medicare benefits. (Consult your Social Security, Medicare or other financial advisor to determine how reverse mortgage payments may affect your particular situation). If however you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are counted as "liquid assets" if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. You should discuss the impact of a reverse mortgage on federal, state or local assistance programs with a professional advisor, such as your local Agency on Aging (toll free at 1-800-677-1116) - or a tax attorney.

Q. Can my credit history influence my ability to get a reverse mortgage?
A. No. Since reverse mortgage borrowers need not make monthly payments, there are no credit score requirements.

Q. What kinds of homes are eligible for a reverse mortgage?
A. A reverse mortgage must be on the borrower(s) primary residence, that is, where they live most of the year. Eligible properties for M&T’s reverse mortgage include 1-4 unit homes, FHA approved condominiums and planned unit developments. Mobile homes and cooperatives are generally not eligible for a reverse mortgage.

Q. Will I continue to own my home?
A. Yes. Your name will remain on the deed until your home is sold or your estate is settled. However, a mortgage will be placed on your property, as would be the case with any real estate secured loan.

Q. Can a reverse mortgage lender take my home away?
A. No, they cannot, provided you continue to keep your home as your primary residence, in a good state of repair, with property taxes paid and insurance coverage in place and comply with the terms of the security instrument.

Q. When must a reverse mortgage loan be repaid?
A. Your reverse mortgage loan becomes due when one or more of the following conditions occur:
(a) The last surviving borrower passes away or sells the home
(b) All borrowers permanently move out of the home
(c) The last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness
(d) You fail to pay property taxes or insurance
(e) You let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems

When the loan becomes due, the reverse mortgage principal advanced, interest charges, and service fees (including closing costs) are paid in full from the sale of the house or other assets of the estate. Whatever is left over from the sale of the home goes to the owner or estate.

Q. What kinds of reverse mortgages are available?
A. There are three basic types of reverse mortgages:

Federally-insured reverse mortgages
Known as Home Equity Conversion Mortgages (HECM), they are insured by the U.S. Department of Housing and Urban Development (HUD). They are widely available, have no income requirements, and can be used for any purpose.

Government-sponsored reverse mortgages
A Home Keeper® is Fannie Mae's conventional market alternative to the Home Equity Conversion Mortgage (HECM). It is a government-sponsored enterprise program and works like a HECM loan in many ways. However, a Home Keeper® reverse mortgage addresses certain special needs not met by HECM loans,including individuals with higher property values and seniors wishing to use a reverse mortgage to purchase a new home.

Proprietary reverse mortgages
These are private loans with unique features that appeal to certain kinds of borrowers.

Q. Are reverse mortgage interest rates fixed or variable?
A. Reverse mortgages have variable and fixed rate options. Variable rate options are tied to Treasury bill interest rates and adjust on a monthly or annual basis.

Q. How is a reverse mortgage like a home equity loan? How is it different?
A. Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash. They differ in that with a home equity loan, you must qualify based on your income and credit history and make regular monthly payments of principal and interest. With a reverse mortgage, you do not have to repay the loan for as long as you maintain the home as your primary residence.

Q. Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?
A. Yes. Refinancing may make sense if your home increases in value, interest rates drop significantly, or you are much older than at the time of the original loan closing.

Q. If I have an existing first or second mortgage, can I get a reverse mortgage?
A. Yes, you may be eligible for a reverse mortgage - even if you still owe money on a first or second mortgage. You must use reverse mortgage proceeds to pay off the existing mortgage balances however.

Q. Can I get a reverse mortgage on a second home or resort property?
A. Unfortunately no. Reverse mortgages may only be taken out on your primary residence.

Q.Would a home that is in a "living trust"/ "life estate" be eligible for a reverse mortgage?
A. Typically, yes. In most cases a homeowner who has put his or her home in a living trust/life estate deed can obtain a reverse mortgage. A review of any trust documents would be made by the reverse mortgage lender to determine if anything in the living trust/life estate would prohibit qualification. Irrevocable trusts do not qualify.

Q. If I obtain a reverse mortgage, will I still have an estate that I can leave to my heirs?
A. When you sell your home, or no longer use it as your primary residence, you or your estate must repay the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs.

Q. Must my heirs sell the property to repay the reverse mortgage loan?
A. No. They can pay off the existing reverse mortgage balance with other available funds or obtain a traditional mortgage to pay off the balance and not sell the home.

Q. What is "TALC" and why should I know about it?
A. TALC is short for "Total Annual Loan Cost." It combines all of the costs of a reverse mortgage into a single annual average rate and can be very useful when comparing one type of reverse mortgage to another. Reverse mortgages vary in term of their features, benefits and costs. So it’s not always easy to compare "apples to apples." If you are considering a reverse mortgage, be sure to ask the lender or counselor to explain the TALC rates for the various reverse mortgage product options.

Q. Why must I meet with a counselor before completing my reverse mortgage application?
A. This is a federally mandated feature of the reverse mortgage process and is designed for your protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pro's and con's of your reverse mortgage alternatives. He or she will discuss reverse mortgage costs and financial implications and tell you about any government or nonprofit programs for which you may qualify. A list of approved counseling agencies is posted on the internet by the U.S. Department of Housing and Urban Development, at

Q. How can I get started?
A. Getting started is easy. An M&T reverse mortgage specialist will meet with you in person or talk with you over the phone about your reverse mortgage options. You’ll learn how a reverse mortgage works, how they compare to other options and how much money you may be eligible to receive. Our goal is to educate you about reverse mortgages so you’re comfortable deciding whether one is right for you. Then you’ll decide whether you want to take the next step, completing reverse mortgage counseling. After that, you can apply.

( Courtesy: M&T Bank is one of the country's most highly regarded regional banks. They were founded more than 150 years ago in WNY, where they are still headquartered. Their parent company, M&T Bank Corporation, had over $79 billion in assets as of June 1, 2011. )


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