Reverse Mortgages are so unknown and misunderstood, most people do not even know the questions they should ask. These are the most common questions and concerns regarding Reverse Mortgages:
Question – What is a Reverse Mortgage? Is that when the Bank gives you some money and takes your home?
Answer – A Reverse Mortgage is an excellent financial planning tool for older homeowners to supplement their retirement income, pay for healthcare costs, make home improvements, buy a second home, and/or establish an emergency fund, while staying in their home. You can use the money anyway you wish, as it is your money and your house. With a Reverse Mortgage the Bank pays you versus you paying the Bank.
You continue to own your home and keep title as long as you have your Reverse Mortgage, just as you did or are still doing with your traditional mortgage. Once you permanently move out of your home or pass it onto your estate, the loan must be repaid. A Reverse Mortgage is paid just as a traditional mortgage is paid off when your home is sold; you or your estate keep the net proceeds of the sale just as you normally would.
A Reverse Mortgage differs from traditional mortgages as they are non-recourse loans, so you can never owe more than the value of your property. This is a protection on Reverse Mortgages for you and your heirs.
Question – Do I qualify for a Reverse Mortgage?
Answer – You must be at least 62 years old. If there are several people on the title of your home, everyone on the title needs to be at least 62 years old. If one spouse or co-owner is under 62, they must be removed from the title to qualify for a Reverse Mortgage.
You need to have equity in your home. It is the equity you are borrowing against. You can have a mortgage on your home, but generally this should be less than 50% of the value of the property. Your current mortgage would be paid off by the Reverse Mortgage so you would no longer have to make a payment every month. You would be payment free.
Single family homes, eligible condominiums and townhouses, multifamily homes, and 55+ Adult community properties, and some manufactured homes, qualify for Reverse Mortgages. You must live in the property as your primary residence. You can own a second home or investment property and still qualify on your primary home for a Reverse Mortgage.
Your income and credit does not matter to qualify for a Reverse Mortgage. A Reverse Mortgage works the opposite of a traditional mortgage in that regard. As you do not make any payments to the Bank for as long as you live in your home, your credit history and income are irrelevant. The Bank makes payments to you versus you making payments to the Bank. You can even use a Reverse Mortgage to pay off a bankruptcy, tax liens, credit cards, or to get out of foreclosure and save your home.
The requirements for a Reverse Mortgage are very flexible versus a traditional mortgage.
Question – What are my payment options?Answer - You decide how you wish to be paid by the Bank. Basically your options are:
- An up-front Lump Sum payment at closing.
- A Line of Credit – perfect for an emergency fund.
- Fixed Monthly payments for as long as you remain in your home or for a time period predetermined by you.
- Any combination of the above options.
Many Borrowers take a combination of the options using up-front money to pay off a current mortgage, pay off credit cards and other debts, make home improvements, etc.; a Line of Credit for an emergency fund just in case; and a monthly payment for income.
With the government sponsored Reverse Mortgage programs, your payments will continue as long as you live in your home, regardless of what your loan balance is or how old you are. If you wish to change your Line of Credit or monthly payments after you have your Reverse Mortgage, you can for a small fee of $20.
Reverse Mortgages offer great flexibility to change to your needs versus traditional mortgages that are set in stone.
Question – How much money can I get?
Answer - Your loan amount is based on a formula that takes into account your age, the value of your house, the amount of equity you have, the current interest rates, and where you live. Each of the Reverse Mortgage programs offered by Mortgage Trust Group calculates the loan amount differently. Your Reverse Mortgage Specialist Loan Officer will calculate the loan amounts for you and show you comparisons of the three programs, assisting you in deciding which is the best option, including the various payment choices that best meet your plans, needs and goals.
Basically, the older you are, the more your house is worth, the more money you can get. The government sponsored Home Equity Conversion Mortgage or HECM, normally gives you the highest loan amount. The HECM program represents over 95% of all Reverse Mortgages.
Question – What do I pay during the time I have the Reverse Mortgage?
Answer - You do not make any payments while you have your Reverse Mortgage. The payments are to you versus you making payments to the bank. You do however pay your own property taxes and home insurance. The interest on what you owe, service fee, and so on, are added to your loan balance. Your loan balance is paid when you sell your home or pass it onto your estate.
Question – How much does a Reverse Mortgage cost?
Answer - The up-front fees, closing costs, and the interest rate, are limited by law. The costs are similar to a traditional mortgage, for example an appraisal fee, title search, etc. The government insured Home Equity Conversation Mortgage or HECM, has an up-front mortgage insurance fee paid to the Federal Housing Administration.
The up-front costs of any mortgage are high. Thus, any mortgage is not a good option if you do not plan to stay in your home for several years. The longer you stay in your home and keep your Reverse Mortgage, the less these costs are in relation to the money you are getting.
Reverse Mortgages are often criticized as expensive loans. The common misunderstanding is that unlike a traditional mortgage where you receive the whole loan amount at closing, with a Reverse Mortgage you are getting money over time. Thus, you only get part of the money you are borrowing at closing with a Reverse Mortgage. This makes the Reverse Mortgage seem to be more expensive than a traditional mortgage when it really is not.
The longer you keep your Reverse Mortgage the lower the costs of the loan and the greater the benefit to you.
All the up-front costs and closing costs can be put into your loan. You can get a Reverse Mortgage with no money out of pocket from you other then the appraisal, which can be rolled into your loan at closing.
There is no prepayment penalty. You can pay off your Reverse Mortgage anytime you wish.
You will be shown the costs, estimates of the Total Annual Loan Cost over time, as well as your estimated loan balance over time, during your meeting with one of our Reverse Mortgage Specialists to determine if a Reverse Mortgage is right for you.
Question – Do I need to have my home appraised?
Answer – Yes, your home will need to be appraised, as it is a factor in determining the amount of money you can borrow. Your home is the collateral for your loan the same as a traditional mortgage. The appraiser will also decide if there are any repairs that need to be made or if a termite inspection is needed.
Mortgage Trust Group orders the appraisal for you. The appraiser will call you to schedule a time to view your property.
By law, Mortgage Trust Group cannot order the appraisal nor start working on your loan at all until you have gone to an approved Reverse Mortgage counseling session and have the original counseling certificate. Our hands are legally tied and we can not move forward until you have your certificate in hand.
Question – Do I have to go to counseling?
Answer – The government has a number of regulations on the Reverse Mortgage to safeguard Seniors. Years ago, before Reverse Mortgages were heavily regulated by the government, many private equity lenders deceitfully had appreciation clauses in their contracts and some of these dishonest lenders even took title to your home, giving you a Life Estate while you lived in it. With these appreciation clauses the lender took a percentage of the appreciation of your home in addition to the balance you owed. These deceitful lenders were really a silent partner in your home, sharing in your profits. This is not the case today with the current safeguards of Reverse Mortgages. The awful situations of the past are the cause of many of the present misunderstandings regarding Reverse Mortgages.
The Reverse Mortgage programs Mortgage Trust Group offers have the following safeguards to protect Seniors:
- Mortgage Trust Group is approved by the Federal Housing Administration to offer government insured Reverse Mortgages.
- Mandatory Advance Counseling is required to ensure that you fully understand your Reverse Mortgage and any other options, so you can select the option that best fits your needs.
- Government limits on interest rates and loan fees.
- A ceiling on the repayment amount – it can never exceed the value of your home.
- Federally mandated consumer disclosures.
- None of the Reverse Mortgage programs we offer have appreciation clauses nor take title to your home.
Question – Do I need an Attorney to apply for a Reverse Mortgage?
Answer – Legal counsel is not required to get a Reverse Mortgage. However, Mortgage Trust Group encourages you to seek any legal, tax, or financial advisor you need before committing to a Reverse Mortgage.
Applying for a Reverse Mortgage does not commit you to getting a Reverse Mortgage. You can change your mind at anytime including up to three days after your closing. For several reasons, it is beneficial for you to apply as soon as you believe you may be interested in a Reverse Mortgage. You can always change you mind afterward until 3 days past your closing.
Question – Is the money I receive from a Reverse Mortgage taxable?
Answer – The money you receive from a Reverse Mortgage is tax-free as it is your own money, not income. Should you have any tax questions, please seek the advice of your tax professional.
Question – What is the interest rate on a Reverse Mortgage?
Answer – The interest rate varies by the Reverse Mortgage loan program you choose. Unlike traditional mortgages, the rates on Reverse Mortgages are limited by the federal government. Thus, all Reverse Mortgage Lenders are the same regarding the terms and rate.There are fixed and adjustable rate mortgage options. As the rates are lower on adjustable rate Reverse Mortgage products, you qualify for more money.
Adjustable rates are based on an index and a margin. The index + the margin = the rate.
The indexes for the various Reverse Mortgage program options include:
- The 1 Year U.S. Treasury Rate
- The London Inter-Bank Offer Rate (LIBOR)
- 1 month Certificate of Deposit Secondary Market Rate
- The LIBOR (London Inter-Bank Overnight Rate)
These are public indexes that are published in the newspaper.
The indexes, margins, and how the interest rates work, will be explained to you by your Reverse Mortgage Specialist during your meeting.
Question – When does my Reverse Mortgage come due?
Answer – Basically a Reverse Mortgage comes due when:
- The last surviving borrower permanently leaves the home.
- The home is allowed to deteriorate and you fail to correct the problem.
- All borrowers permanently move to a new principal residence.
- the last surviving borrower fails to live in the home for 12 consecutive months.
- You fail to pay property taxes or hazard insurance and do not correct the situation.
The Bank never wants to foreclose. At the time of application, you are required to provide two people as Alternative Contacts. Should there be a problem and the Bank cannot get a hold of you, they will contact one of your Alternative Contacts to help resolve the problem. This is another protection measure for you.
Question – So if I move out the loan is due?
Answer – Once you no longer live in your home as your principal residence for a period of more than 12 months, your Reverse Mortgage comes due and must be paid. Similarly, if you sell your house, you must pay off the balance of your Reverse Mortgage just like a traditional mortgage.
Question – What happens when my house gets passed to my heirs?
Answer – Once your home is passed to your heirs, the Reverse Mortgage comes due. Your heirs may either pay the balance due and keep the home, or sell the home and use the proceeds to pay off the loan. They keep any excess proceeds from the sale just like any real estate sale.
As long as your heirs show they are trying to sell the property, they will be given months to sell the home. During this period of time, the loan balance will continue to grow even though you are no longer receiving payments, as the interest on the balance continues to be added until the loan balance is paid.
If somehow your balance is more than the value of the property, your heirs only have to pay up to the value of the home. Reverse Mortgages are non-recourse loans as a protection measure for both you and your heirs. With traditional mortgages you or your heirs owe the balance regardless of the value of your home. With a Reverse Mortgage you and your heirs are never responsible for more than the value of the home no matter how much you owe.
Question – How do I go about getting a Reverse Mortgage?
Answer – Contact one of our Reverse Mortgage Specialists to set an appointment to meet in your home. We will meet with you to understand your needs and goals, explain your options, costs, interest rates, and the loan process to you.
If you decide you are interested, we will take your application and documentation. Mortgage Trust Group cannot legally proceed on your application until you complete your Counseling and get your Certificate. Your application and information will be taken prior to Counseling so that we have it on file to answer any of your advisors or your children’s questions. Your application does not commit you to getting the loan. You may cancel at anytime during the process up to three days after your closing.
After Counseling, your wishes for the loan will be reconfirmed, your Counseling Certificate and any remaining documents will be gathered. Mortgage Trust Group can now begin to process your loan. Our Appraiser will contact you and the Closing Attorney will begin your title work.
After your loan has been underwritten, your closing will be scheduled. You have up to three days to change your mind and rescind after you close.
Call us anytime after closing with any questions you may have.
Question – How quickly can I get my Reverse Mortgage?
Answer – Due to all the regulations, a Reverse Mortgage takes longer than a traditional mortgage. On average, it takes 6 to 8 weeks after your Counseling.
Mortgage Trust Group cannot legally start process your loan until you have taken the mandatory Counseling and have your original Certificate. We will do what we can to speed the process and make it easy for you.
Question - Do you have the lowest rates?
Answer - Unlike traditional mortgages, the rates, up-front costs, and closing costs are limited by law as a protection measure for you. Thus, all Reverse Mortgage Lenders are the same regarding the terms. What differentiates Mortgage Trust Group, is our service, answering all your questions as well as your advisors' concerns.
You are life long clients with Mortgage Trust Group.
NOTE: The above answers apply to the Reverse Mortgage programs that Mortgage Trust Group, Inc. offers. The regulations of several States allow Reverse Mortgage/Equity programs that differ greatly from the above government sponsored and insured programs. Caution and legal advice is highly suggested for those non-government sponsored equity programs.
Mortgage Trust Group, Inc.
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