What is a reverse mortgage?
A reverse mortgage is an FHA-insured loan on the equity in your home, but you never pay it back as long as you live in your home.
Anyone at least 62 years of age who owns a home qualifies.
Does the home have to be paid off?
No. Many people purchase a reverse mortgage to pay off their current mortgage.
How much money will I receive?
An appraiser will come out and determine the market value of your home. You should then receive between 45% – 75% of the appraised value of your home. The older you are, the higher percentage you will receive. Also, you will not pay any income tax on the reverse mortgage.
How long does it take to receive the money?
Normally, it takes 5-6 weeks to complete a reverse mortgage.
Do I receive the money from the reverse mortgage in a lump sum, or in monthly payments?
You can receive the money any way you wish: in a lump sum; in monthly payments for as long as you live in your home; or, you can take out a partial lump sum, with the rest to be paid monthly.
Do we pay closing costs?
You pay nothing, at any time, out of your pocket. The closing costs are rolled into the loan, so they are paid out of the equity in your home, but you don’t bring any money to closing.
How is the reverse mortgage paid back?
After you pass away, the home is left to your heirs (your children, or grandchildren, etc.). They can either sell the home, which will pay off the mortgage, and they will receive the remaining money; or, if they want to live in the home, they will simply take out a refinance mortgage.
Will any money be left in the home for my kids when I pass away?
There should be quite a bit of money left for them. The reason the reverse mortgage only pays you from 45% – 75% of the home’s value is because the program is set up so there should be plenty of equity left in the home for your heirs when you pass away. The interest rates on reverse mortgages are extremely low and they are set up that way so the value in your home should increase more each year than the loan increases, due to the interest.
So, does the equity grow in my home after I take out a reverse mortgage?
Yes, in most cases. Since the interest on the reverse mortgage is quite low, your home’s equity should increase each year. Nationally, home prices increase about 4% a year on average. In the metroplex, homes have been increasing during the past years. If your home increases only 4% (the national average) the equity in your home will double in 16 years, even with a reverse mortgage loan. So, your children, or heirs, should inherit plenty of money after they sell the home and the mortgage is paid off.
Will that still apply if interest rates become quite high?
If interest rates increase dramatically, that means inflation is high, therefore, your home’s value should be greatly increasing, as well. So, your home’s equity should continue to grow each year, whether interest rates are low, or high.
If I pass away first, does my spouse have to sell the home?
No, as long as either of you are living in the home, the reverse mortgage doesn’t need to be paid.
How does the bank make their money?
They make their money on the interest which gradually accumulates on the loan. Therefore, they have to wait until you pass away before they receive any money.
Do my heirs have to sell the home immediately after I pass away?
The bank gives them 6 months to sell the home. If the home is still not sold, the bank will continue to provide your heirs with 3 month extensions until the home is sold.
How can I be sure that the bank won’t try to take away my home from me?
The reverse mortgage is a government-run program, so it is insured by FHA to make sure that the mortgage never changes, and that neither you, nor your heirs, will ever get stuck paying a bill. Also, the longer you live in your home, the more money the bank will eventually make on the reverse mortgage, so they want you living there for many years.
Can I get a reverse mortgage on my rental home?
No, a reverse mortgage can only be taken out on your homestead.
Will I continue to pay for my homeowner’s insurance, and taxes?
Yes, those will be your only responsibilities.
Can I ever sell my home?
Yes, you can sell at any time. You would simply sell your home for the market price, this will pay off your reverse mortgage, and you will receive the remaining money. So, in essence, it would be as if you are receiving some of the money out of your home now by taking out a reverse mortgage, and you will receive the rest of the money when you sell the home.
My home needs repairs. Will I need to fix my home before I can get a reverse mortgage?
No. The appraiser will determine if any structural damage will need to be repaired in your home. Cosmetic repairs are not of any concern to the appraiser. If a repair is needed, you will simply have to provide an estimate to the bank, and the work can be usually done after you receive your money. The bank will put aside some money for the repairs, out of your proceeds, so they can pay the repairman after he finishes his job. This helps so you won’t have to pay anything out of pocket for repairs.
How can I be sure I will receive a good appraisal for my home?
We use independent appraisers, so we are not bound to any single appraiser. We are fair, but we also strive to get you the top dollar price possible for your home. This will insure you will receive as much money from the reverse mortgage as possible.
Can another company, or bank, give me a better deal?
Since the reverse mortgage is run through the government, the interest rates are about the same, and the fees paid by the bank are almost the same for everyone.
How much money do you receive as the broker?
We receive the national standard of $2,000, or 2% of the home’s value if it is appraised for over $100,000. This pays me, our boss, the loan processor, our secretary, as well as paying our rent and office expenses, so it is chopped up into many pieces.
Do I pay this money to you?
You do not pay us directly, so you bring nothing to the closing table. This fee is paid by the bank up front. It is paid out of the equity in your home, but it is not paid out of your pocket.
How long have reverse mortgage been in existence?
They started in 1961 in other parts of the country. They became a government-run program in 1977. Texas was the last state to permit them, in 2001.
Can I receive more money from an equity loan?
Possibly, if you qualify; however, you will have a monthly mortgage payment. Also, many senior citizens don’t qualify for an equity loan, at least not a large equity loan, because of their fixed incomes. Anyone at least 62 years of age, who is considering an equity loan, should really take out a reverse mortgage, which is an equity loan you don’t pay back.
So, I receive between 45% – 75% of my home’s appraised value; I never pay any fees out of my pocket; I can live in my home for the rest of my life; I make no house payments; I pay no income tax for the reverse mortgage; and my children inherit my home? This sounds too good to be true. Are there any drawbacks to the reverse mortgage?
The only drawback is that your heirs will not receive the total value of your home when you pass away. However, as mentioned previously, there should still be plenty of equity left in your home when you pass away, so they will receive a handsome check after selling your home. Other than that, there is no real drawback to a reverse mortgage.