What is Reverse Mortgage?
( This is meant for senior citizens )
Article page |
Health page |
Fruits and Vegetables
Heroes & Incredible peoples
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
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
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
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
- 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
Q. If I take on a reverse mortgage, how will it affect my government
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
(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
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
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
Q. If I have an existing first or second mortgage, can I get a reverse
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
Q.Would a home that is in a "living trust"/ "life estate" be eligible for a
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
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 www.hud.gov
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.
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. )