FAQ, Facts, and Myths

If you are a resident of Wisconsin age 62 or over, and own your own home - then you are eligible for a reverse mortgage.

C
A
L
L

T
O
D
A
Y

Questions, Myths and the TRUTH
About Reverse Mortgages

Dear Wisconsin Senior,

Reverse Mortgages have been around for decades, but it's only in recent years that they have become more popular for senior citizens. Because they are relatively "new" in the eye of the consumer, there are many opportunities for educating the public.

This page is aimed at just that - helping you to sort the myths from the facts, weigh the benefits, and decide if a Reverse Mortgage would be a wise decision for your personal situation. The following are the most common concerns that my customers have. I hope that I am able to answer all the questions you have, but if I haven't I hope that you'll pick up the phone and call, or send an email to me.


QUESTION:	What is a Reverse Mortgage?
ANSWER:	A reverse mortgage is a safe and easy way for seniors to turn their home's equity into an additional source of income to meet ANY financial need. It is a loan that is available to senior homeowners who are at least 62 years of age. Unlike traditional home equity loans, this product does not require repayment of any kind until the home is sold, or the borrower permanently leaves their primary residence.

QUESTION:	How do I qualify for a Reverse Mortgage?
ANSWER:	Qualifying for a Reverse Mortgage is simple. Borrowers need to be at least 62 years of age, own their own home, have adequate equity in their home, and live in their primary residence. There are no income or credit qualifications necessary to be eligible for this loan. This is beneficial if you are trying to avoid foreclosure or having financial difficulties. A reverse mortgage can be used to pay the existing mortgage so you can stay in your home with no payments required as long as you live in the home.

MYTH: I still owe on my home, so I can't qualify for a Reverse Mortgage. FACT: If you have an existing mortgage you can qualify for a Reverse Mortgage. The existing mortgage(s) must be paid off at the time of closing, and you may use a portion of the proceeds from the reverse mortgage to do that.

QUESTION:	Are there any limitations as to how the proceeds can be used?
ANSWER:	Reverse mortgage borrowers may use the proceeds for whatever they wish. Often, the monies are used to pay for prescription drug costs, make needed home repairs, pay for home health care, travel pay property taxes pay off debt, including conventional mortgage and credit cards

QUESTION:	How are the proceeds of a Reverse Mortgage paid to me?
ANSWER:	Proceeds are paid in any combination of the following: lump sum monthly (tenure) payments - for life of loan term payments - for specific period of time line of credit - with growth modified tenure - combination of monthly payment and line of credit

MYTH: The cash advanced to me from a Reverse Mortgage will affect my other retirement benefits, such as Social Security, Medicare, or my pension. FACT: The cash advanced to you from a Reverse Mortgage will NOT affect these benefits. However, confer with you tax advisor as each individual's situation differs.

QUESTION:	Why should I consider the Reverse Mortgage?
ANSWER:	Just a handful of the many benefits to a reverse mortgage include: it unlocks the equity built into the home there are no income or credit qualifications - you can qualify even if you are in foreclosure or collection the proceeds received as tax-free income FHA Insured or Fannie Mae guaranteed growth on the credit line option no debt passes to your heirs it does not affect Social Security or Medicare benefits

QUESTION:	How much money can I expect to receive as a Senior Homeowner?
ANSWER:	How much money a borrower receives from the reverse mortgage depends upon their age, the value of their home, and the interest rate. The older the borrower and the higher the home value = the more money they are eligible to receive.

MYTH: The bank can take my house if I have a Reverse Mortgage. FACT: The bank can never take your house with a Reverse Mortgage! Because a Reverse Mortgage is just a loan against the property, the homeowner retains full ownership and the Reverse Mortgage is just a lien. The lender is only repaid the loan balance or the home value, whichever is less.

QUESTION:	Exactly how "safe" is the reverse mortgage?
ANSWER:	Reverse mortgages are a very safe income option for the senior homeowner. Remember that: the borrower(s) name remains on the title to the home debt owed on the loan does not pass to heirs the borrower will never owe more than the loan balance OR the value of the property - whichever is LESS Reverse Mortgages are strictly regulated by the Department of Housing and Development and industry associations like AARP and NRMLA (National Reverse Mortgage Lenders Association)

QUESTION:	Are there any types of homes that do NOT qualify for a Reverse Mortgage?
ANSWER:	Yes. The following types of homes do NOT qualify for a Reverse Mortgage: vacation homes, secondary homes, mobile and manufactured homes which are not fixed to a permanent foundation, rental properties which encompass more than 4 units and homes on leased lands.

MYTH: I want to take out a Reverse Mortgage, but I can't afford to pay closing costs. FACT: There are upfront costs with a Reverse Mortgage; you are responsible for an origination fee and actual closing costs, including fees from the title and escrow companies. However, these amounts can be financed as part of the loan, resulting in NO OUT-OF-POCKET-COSTS AT CLOSING.

QUESTION:	What is my tax burden from the proceeds of a reverse mortgage?
ANSWER:	At this time, the IRS does not regard the proceeds of a reverse mortgage as taxable income. However, confer with your tax advisor as each individual's situation differs.

QUESTION:	Will a Reverse Mortgage affect my eligibility for SSI or Medicaid?
ANSWER:	These benefits will NOT be affected by the proceeds of a Reverse Mortgage IF the monthly cash advances are completely spent in that month and not accumulated. These rules do vary state to state, so check with the local Area Agency on Aging, and also confer with your tax advisor.

MYTH: The house will have to be sold to repay the Reverse Mortgage loan. FACT: Refinancing the home by means of a conventional mortgage can satisfy the Reverse Mortgage Loan. Your heirs can choose to keep the home if they wish.

QUESTION:	How much is due at the end of the loan?
ANSWER:	The cash advances that have been received, and the accumulated interest are due at the end of the loan (when you permanently leave the home).

QUESTION:	Is the interest on my reverse mortgage loan principal tax deductible?
ANSWER:	The interest accrues and is tax deductible when the loan balance and interest is repaid. This happens when the borrower permanently leaves the home. However, confer with your tax advisor as each individual's situation differs.

MYTH: I can owe more than my house is worth! FACT: A reverse mortgage is a "non-recourse" loan. The borrower can never owe more than the value of the home, regardless of the loan balance.

QUESTION:	My home is in a living trust. Can I take out a reverse mortgage?
ANSWER:	The answer is usually yes, subject to review of the trust documents.

QUESTION:	What are my responsibilities, as the homeowner?
ANSWER:	You must pay your property taxes (which you can do with Reverse Mortgage proceeds), maintain the home, retain property insurance, and notify the lender if you will be away from the property for an extended period of time. You are also required to attend a free, but mandatory counseling session by a FHA or Fannie Mae approved reverse mortgage counselor.

QUESTION:	When does the loan become due and payable?
ANSWER:	The loan is due and payable when the borrower sells the property, permanently leaves the home, or dies. In the case of a couple, repayment is activated when the second person moves out or dies.

QUESTION:	What are the property requirements of a Reverse Mortgage?
ANSWER:	The property must be single family (1 - 4 units eligible for HECM type loans only) The borrower must occupy the home as their primary residence Condos and PUD's are eligible if FHA/Fannie Mae approved Properties must meet minimum FHA/Fannie Mae guidelines.

QUESTION:	What are the three reverse mortgage programs available to me?
ANSWER:	1. FHA Home Equity Conversion Mortgage, or "HECM" This type of loan is insured by the FHA (Federal Housing Administration), a division of the US Department of Housing and Urban Development (HUD). The loan amount is based upon your age and the value of the home. HUD regulates the amount of each individual loan, as well as limiting the maximum amounts allowed according to the area of the country. This type of reverse mortgage limits the loan costs. The government guarantees that the lender meets its' obligations. Many consumers choose the HECM loan because of the credit line growth option. The rate at which the credit line grows is equal to the current interest rate being charged on the loan plus 0.5%. Unlike other reverse mortgages with the same costs, the cash received from a HECM loan can be used for *any purpose. HECM loans also usually provide the largest loan cash advances compared to other reverse mortgage programs Cash can be advanced to you in three ways: a single lump sum of cash. a line of credit for a specific amount from which you decide when and how much to withdraw. The line of credit grows over time*. as a monthly payment made to you over a specified amount of time or as long as you live in the home. Borrowers can select from one or all of these options, and can change their selection at any time during the loan period, providing further flexibility to the HECM loan. HECM loans account for the majority of reverse mortgages originated. 2. Fannie Mae "Home Keeper" Mortgage This type of reverse loan is guaranteed by Fannie Mae, it is not insured by the FHA. Cash can be advanced to you in three ways: a single lump sum of cash a line of credit for a specific amount from which you decide when and and how much to withdraw. The line of credit does NOT grow. as a monthly payment made to you over a specified amount of time or as long as you live in the home. Borrowers can select from one or all of these options, and can change their selection at any time during the loan period. 3. "Jumbo" Reverse Mortgage Products These loans are not insured by the FHA, they are guaranteed by the company from which they are issued. Cash can be advanced to you in three ways: a single lump sum of cash a line of credit for a specific amount from which you decide when and and how much to withdraw. The line of credit does NOT grow. as a monthly payment made to you over a specified amount of time or as long as you live in the home. The main advantage of this type of product is that there are no limits to the amount of the cash advanced, in some cases going over $1,000,000 when the value of the home is sufficient. Also they can have no closing costs.

Get more info on Virginia reverse mortgage loans and rates