REVERSE MORTGAGES
END MONTHLY PAYMENTS

More Questions and Answers

Q. How does a Reverse Mortgage differ from a Home Equity Loan?
A. While both Reverse Mortgages and Home Equity Loans enable you to turn the equity in your home into spendable dollars, there are important differences between the two types of mortgages.

WITH A HOME EQUITY LOAN, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, you must earn a monthly income great enough to make those payments. If you fail to make the monthly payments, the Mortgage Lender can foreclose on you, and you can be forced to sell your home. In addition, you may be required to re-qualify for a Home Equity Loan each year. If you do not re-qualify, the Lender may require you to pay the loan in full immediately.

WITH A REVERSE MORTGAGE, you do not repay the loan as long as your home remains your principal residence, your income is not considered when qualifying you for the loan, and there is no requirement that you re-qualify each year.

Q. Who is eligible for a Reverse Mortgage?
A. You and any co-borrowers must be at least 62 years old and either own your home free and clear or have a very low outstanding mortgage balance that can be paid off at loan closing. Your home most be a single-family or two-unit to four-unit dwelling. Units and Condominiums may be eligible if they are in FHA approved developments. You also must agree to accept expert mortgage counseling from a HUD approved counseling agency. Family members also are strongly encouraged to attend these counseling sessions.

Q. What are the minimum and maximum amounts I can borrow?
A. The maximum amount you can borrow is based on a HUD formula that factors in the age of the youngest borrower, the interest rate, and the maximum claim amount. The maximum claim amount is the lesser of the appraised value of your house or the maximum principal amount for a one family residence that can be insured by FHA in your area. The maximum mortgage amount insured by FHA varies by geographic area and changes frequently. Please check with your Lender for the FHA maximum mortgage amount for your area.

Q. What types of proceeds payment plans are available with the Reverse Mortgage loan?
A. A borrower with a Reverse Mortgage may choose among five proceeds payment options: TERM, TENURE, LINE OF CREDIT, MODIFIED TENURE, and MODIFIED TERM.

Under the TERM option, you may receive equal monthly proceeds payments for a fixed period of time selected by you.

Under the TENURE option, you may receive equal monthly proceeds payments for as long as you occupy your home as a principal residence.

Under the LINE OF CREDIT option, you may draw up to a maximum amount of cash at times and in the amounts of your choosing, as long as you occupy your home as a principal residence.

The MODIFIED TENURE plan allows you to set aside a portion of loan proceeds as a line of credit and receive the rest in the form of equal monthly proceeds payments as long as you occupy your home as a principal residence.

The MODIFIED TERM plan allows you to set aside a portion of loan proceeds as a line of credit and receive the balance as equal monthly proceeds payments for a fixed time period as specified by you.

If you select either of the TERM plans, you can remain in your home after the end of the loan term without starting repayment. The same is true if you have withdrawn the maximum amount under a LINE OF CREDIT or MODIFIED TENURE payment plan.

Remember, repayment of a Reverse Mortgage does NOT begin until you no longer occupy your home as your principal residence.

Q. How will the amount of the monthly payment be calculated?
A. How much you can receive in monthly proceeds payments depends on the age of the youngest borrower, the interest rate, the maximum claim amount, and the length of time that you will be receiving proceeds payments for a fixed period, or for as long as you live in your home. The older you are the larger your proceeds payments are likely to be.

Q. Will Reverse Mortgage payments affect my Social Security, Medicare, Supplement Security Income (SSI), or Medical Benefits?
A. Reverse Mortgage proceeds payments do not affect your Social Security or Medicare benefits because those benefits are not based on the assets of the recipient.

However, in the Federal Supplement Security Income Program beneficiaries must keep their liquid resources under certain limits. If you do not spend Reverse Mortgage advances in the month received, then such funds are considered part of your liquid resources and may adversely affect your eligibility for SSI. Therefore, a Reverse Mortgage borrower who also receives SSI should never draw more money than they actually need to spend that month.

Regulations for state administrated programs such as Medicaid, AFDC, Food Stamps, and for state funded welfare programs (such as state supplements to SSI) all have different eligibility requirements. Therefore, we suggest that you consult a Benefits Specialist at your local Area Agency on Aging, or the local offices for these programs, to determine how Reverse Mortgage payments may affect your particular situation.

      

Q. Will I have to pay any fees to obtain a Reverse Mortgage?
A. Yes, you will have to pay an origination fee, other closing costs, and a mortgage insurance premium, which is divided into two parts: an up front premium of two percent of the maximum claim amount, and annual, ongoing fee of half percent on your mortgage balance. You may be able to finance the origination fee, other closing costs, and the up front, two percent mortgage insurance premium, i.e., these items may be included in your loan balance so you do not have to pay for them in cash. In addition to the yearly insurance premium, a servicing fee is charged to your loan balance each month.

Q. Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
A. Absolutely not, as long as you continue to occupy your property as a principal residence. You cannot be forced to sell or vacate your property, even if the total of the mortgage payments to you plus interest and mortgage insurance premiums exceeds the value of your property, or if the fixed term over which you received your proceeds payments has expired. No deficiency judgment may result from your Reverse Mortgage loan. FHA insurance covers any further financial obligation to the Lender.

Q. Will my heirs owe anything to the mortgage Lender if I die?
A. Upon your death, the loan balance, consisting of proceeds payments made to you on your behalf plus accrued interest, becomes due and payable. Your heirs may repay the loan by selling the home or by paying off the Reverse Mortgage loan so that they may keep the home. If the loan exceeds the value of your property, your heirs will owe no more then the value of the property. FHA insurance will cover any balance due to the Lender. No additional financial claims may be made against your heirs or estate.

Q. If my home appreciates in value during the mortgage term, who will be entitled to that money?
A. Under a Reverse Mortgage you are legally required to pay back to the Lender only the outstanding balance. Any money remaining after the mortgage is paid goes to you or, upon your passing, to your heirs.

Q. What if I decide to sell my home?
A. If you choose to sell your home, the outstanding loan balance becomes due and payable to the Mortgage Lender. You or your estate will receive any proceeds exceeding the loan balance.

Q. Can I sell my home to my children and continue to live in it?
A. If you sell your home to your children or any other individual, the HECM will be due and payable at settlement. After the loan is repaid, any arrangements for your continued occupancy of the property must be made with the new owners.

Q. What is Fannie Mae's role in the Reverse Mortgage program?
A. Fannie Mae has agreed to purchase two types of adjustable rate HECM loans from the Lenders who originated them. One Adjustable Rate Mortgage (ARM) plan features annual interest rate adjustments with a two percent cap on the amount that the interest may change at each adjustment and a five percent cap on increases or decreases over the life of the loan. The other ARM plan features monthly interest rate changes, and limits interest rate increase to a ten percent over the life of the loan. --