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Reverse Mortgage FAQ's

Reverse Mortgages - Frequently asked Questions

What is a Reverse Mortgage – in the simplest terms possible?
It is a mortgage loan that allows you to access the equity in your home without monthly payments. You must be 62 years or older to be eligible for a Reverse Mortgage. Although it is insured by the Federal Housing Administration (FHA), it is not a government benefit program.

How is it possible to have a loan without making monthly payments?
The lender on a Reverse Mortgage collects the interest, principal and mortgage insurance premiums on the loan when it is paid off, not in monthly payments.

What if my spouse isn’t 62 yet?
Under the new rules of the FHA Reverse Mortgage program, if your spouse is younger than 62, you can still qualify by yourself, but their age is also taken into consideration when your loan amount (called the Principal Limit in a Reverse Mortgage) is calculated. There are other rules about this situation that require a more detailed explanation. Call for more details.

I’ve heard that Reverse Mortgages are some kind of scam and a horrible idea for seniors.
The FHA (Federal Housing Administration) would not insure a loan program, as it does for Reverse Mortgages, which was any kind of a scam for seniors. In fact, it is just the opposite. The Reverse Mortgage is a program which was created to help seniors stay in their homes by allowing them to access their equity.

Without this program, some seniors would not be able to stay in their home. This is because they need access to their home equity to cover some expense and their only other option to access that equity would be to sell the home, because they don't have enough income to qualify for a standard mortgage to access their equity. 

Other seniors who have sufficient income to stay in their home would not have access to their largest asset (the equity in their home) without selling the home. This is because many seniors in their retirement years, although they have sufficient income to live comfortably, don’t have enough income to qualify for payments on a regular mortgage to access their equity. So they end up not being able to access their largest asset without selling their home.

Are Reverse mortgages only for people that have no other options?
This is a commonly held notion, but is not really true. The Reverse Mortgage is really just another financial tool. Some borrowers don’t want to disturb other investments they have and prefer to use the equity in their home rather than having to liquidate some other asset or investment. 

I’ve heard that Reverse Mortgages are really expensive.
It’s hard to compare a Reverse Mortgage to any other mortgage loan, because it doesn’t require monthly payments and it is a loan in which you could keep receiving payments even after the balance on your loan exceeds the value of your home. No other mortgage loans have these features. However, if a comparison must be made you should compare it to regular FHA mortgage, which has similar costs.

Is Income Qualifying required on a Reverse Mortgage?
As of April 27th 2015 a Financial Assessment is required for all Reverse Mortgages. This process involves  evaluating income, assets and monthly debts along with other considerations. Call for more details.

What happens to my Reverse Mortgage if I sell my home or pass away?
Just like any other mortgage, the amount of the outstanding balance on the loan (commonly referred to as a “payoff”) is obtained from the lender and any difference between that outstanding balance and the selling price of the home is yours or your heirs.

What happens if my Reverse Mortgage balance goes higher than the value of my home?
Another one of the unique things about a Reverse Mortgage is there is no way you or your heirs can ever be liable for any deficit between the loan balance and the sales price of the home. However, If the home sells for more than the loan balance then you or your heirs get the difference.

What happens if I pass away and my heirs want to keep my home?
Your heirs can simply payoff the Reverse Mortgage loan as they would with any other mortgage loan. If the balance of your Reverse Mortgage is higher than the value of the home, your heirs will never have to pay more than 95% of the current appraised value of the home to clear the Reverse Mortgage and take possession of the home.

When is a Reverse Mortgages a good option?

1. When you would prefer to, or need to, increase your monthly income (in addition to any retirement income or Social Security income or other income sources you may be receiving) and you don’t want to deplete other financial assets you may have, to increase your monthly income.

2. When you want to make home improvements to make your home more accessible, but prefer not to, or can’t afford to, make monthly payments on a Home Equity Line of Credit or a new First Mortgage.  

When is a Reverse Mortgage a Bad option?

1. If you are planning on selling your home in less
than 3 years and can access your home equity some other way, like with a HELOC 

2. If you are in poor health and your health is likely to
require you to go into a nursing home or long term
care facility for more than 12 months.

What are the alternatives to a Reverse Mortgage that allow you to access equity in your home?

1. Obtaining a Home Equity Line of Credit (HELOC)
    or a First or Second lien Fixed Mortgage
. These
    are excellent options if you can afford to make the
    payments and have sufficient verifiable income and
    assets to qualify.

2. Selling your home. This will get you all of the equity
    you have in your home, less any sales costs upon
    closing the sale. In some situations it is the best
    idea, especially for those who don’t have sufficient
    income to cover all their expenses and still maintain
    their home.

AAFCU offers Reverse Mortgages for Refinance and Purchase loans.

Contact our Reverse Mortgage Loan Officer for more information Click Here