John K. Atticks, Esq.
Snow, Atticks & Hollo, L.L.C.
Reverse Mortgage loans were designed specifically for senior-aged homeowners to access the money that has built up over the years as equity.
Seniors (age 62+) obtain reverse mortgages for many reasons, but the most important is that a reverse mortgage makes it possible for people to stay in their own home at a time when the cost of living is getting higher and higher. Other reasons for pursuing a reverse mortgage include paying property taxes or medical and prescription costs, paying off a current mortgage, making home repairs, assisting relatives, traveling or just enjoying life a bit more.
Here are some of the questions we've been asked when consulting with our customers.
You must be age 62 or older. You must also occupy the home as your primary residence – for the majority of the year. Borrowers must own the home outright or have a low enough balance on the existing mortgage that it can be paid off from the proceeds of the reverse mortgage.
Counseling is a vital part of the reverse mortgage process. It gives the potential borrower the opportunity to speak with an independent person who has been trained to conduct these sessions. It is an education session to discuss the financial implications; possible alternatives, borrower obligations, loan costs, and repayment conditions. The counselor will ensure that the potential borrower understands the terms and conditions of a HECM reverse mortgage.
On April 25, 2014, HUD announced changes relating to a spouse who is not sixty two at the time the reverse mortgage is obtained. Starting August 4, 2014, the new regulations state "that HECM documents must contain a provision deferring the "due and payable status" of the reverse mortgage "until the death of the last surviving Non-Borrowing spouse..." . This is a very significant decision and revised the provisions for Non-Borrowing spouses effective for future loans. What this means is that for new loans effective August 4, 2014, the Non-Borrowing Spouse, including common law spouses (if recognized by state law), will be not required to refinance the HECM loan upon the death of the mortgagor. The spouse will need to have been the spouse of the HECM mortgagor at the time of loan closing and have remained their spouse for the duration of mortgagor’s lifetime, identified as such in the contractual documents and have occupied, and continue to occupy, the property securing the HECM as the Principal Residence of the Non-Borrowing Spouse.
There will be very specific, clearly defined actions that must be taken upon the death of the last surviving HECM mortgagor to ensure that the mortgage will remain in good standing. However, when the Non-Borrowing spouse accomplishes these actions, they will be able to remain in their home and continue to receive the benefits of the HECM reverse mortgage. It is important to note that this change will not apply to currently existing reverse mortgages, as FHA’s new policy cannot alter existing, legally binding contracts on reverse mortgages existing prior to this guideline.
The is one of the biggest misconceptions. You retain ownership of your home just as you would if you were to take a "regular" mortgage. However, if you permanently move out or the home passes to your estate, the loan must be repaid.
There are generally no restrictions on how the proceeds of the loan are used. From paying bills to buying a boat, to travel abroad or visiting the family – it is your money to spend.
You don't make payments, because the loan is not due as long as the house is your principal residence.
Borrowers must continue to pay homeowner's insurance and property taxes during the loan period. It is also the borrower's responsibility to keep up with repairs. In fact, if a borrower fails to adhere to any of these obligations, it may become immediate cause for the loan to become due. In which case, it would become payable in full.
Yes, interest accrues monthly based on the current amount borrowed. HECM borrowers can choose an adjustable interest rate or a fixed rate. Interest is due at the point in time when the loan is repaid.
When the loan must be repaid, you or your heirs can either pay the balance due on the reverse mortgage or sell the home and use the proceeds to pay off the reverse mortgage. Remaining equity belongs to the borrower or the borrower's estate and not the bank. Down the road, if you want to leave your house to your children and they wish to live in it, they have to repay the reverse mortgage with cash or through refinancing another mortgage.
The amount of money you can receive from a reverse mortgage is determined by your home value, the number and age of the homeowner(s) and the current interest rate.
Even seniors who have an outstanding mortgage or some other debt on their home may qualify. The proceeds of the reverse mortgage would be used to pay off such debts and the remainder will be made available to you.
A reverse mortgage will not affect Social Security or Medicare but may affect Medicaid. You should seek specific advice on your situation.
Clearly a reverse mortgage deserves serious consideration as a way to provide financial flexibility. There are a variety of options available today. Your first step is a discussion with a trusted mortgage professional, to better understand your choices.
Vivian Dye can be reached at Atlantic Residential Mortgage 203-227-7100, email@example.com NMLS # 16447