Reverse Mortgage Loans, Get the Facts
Reverse mortgages Reverse mortgages are government insured and regulated. to help seniors use the equity in their homes without having to sell the home or qualify for traditional equity loans which require monthly payments. To qualify, the minimum age is 62 or older.
Borrowers retain ownership of their home. In many ways, reverse mortgages are similar to traditional mortgages. The two primary differences are: 1) the lender makes payments for you from your home’s equity 2) the borrower(s) must claim the mortgaged home as their primary residence.
Reverse Mortgages are guaranteed by the FHA so that you receive cash from the equity in your home and retain ownership that can pass on to your heirs.
Proceeds do not affect income tax, Social Security or Medicare.
However as you would expect, interest from a reverse mortgage is not tax deductible until the loan is satisfied.
mortgagees are required to perform a thorough financial assessment of prospective borrowers, which includes, amongst others, a credit history analysis of foreclosures, defaults, late mortgage payments and late property charge payments.
Repayment is deferred until the borrower dies, sells the home, moves out of the house, or defaults on other obligations such as insurance payments or taxes.
Seniors can receive payments from the home’s equity or 2) payoff their existing mortgage or 3) purchase a home with down payment funds and not be required to make monthly payments. When the home is sold the mortgage is paid from proceeds. Any surplus equity reverts back to the sellers or their estate.
The borrowers decide how to use the funds, such as healthcare, home repairs, travel, gifts, schooling for kids &/or grandchildren or anything else.
Interest rates are comparable to traditional mortgage rates.
Interest accrues only on the outstanding loan balance. For example, if you elect to use your reverse mortgage as a line of credit, interest accrues only on the funds you receive as with a traditional line of credit.
There are no early payment penalties. Borrowers may sell the home at any time and pay off the mortgage without penalty.
Disclaimer: “These materials are not from HUD or FHA and were not approved by HUD or a government agency.” (ML 2014-10).