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How Much Money Can I Get. The amount of funds you
are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised
home value, interest rates, and in the case of the government program, the lending limit in your area. In general, the
older you are and the more valuable your home (and the less you owe on your home), the more money you can get. Back to Top
Does My Home Qualify. Eligible property types include single-family homes,
2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. In general, cooperative
housing is ineligible. However, some lenders have developed private programs that lend on co-ops in New York.
Leasehold properties in states such as Maryland are eligible. Back to Top
What are My Payment Plan Options. You
can choose to receive the money from a reverse mortgage all at once as
a lump sum, fixed monthly payments either for a set term or for as long
as you live in the home, as a line of credit, or a combination of
these. The most popular option – chosen by more than 60 percent of
borrowers – is the line of credit, which allows you to draw on the loan
proceeds at any time. To learn more, click here. Back to Top
My Understanding is that the
Unused Balance in the Line of Credit Option Has a Growth Feature. Does
that Mean I'm Earning Interest? No, you're not earning interest
like you do with a savings account. The growth factor, which is equal
to roughly the interest that you're being charged, takes into
consideration that your home has appreciated in value over the past 12
months and that you are one year older. Back to Top
How Can I Use the
Proceeds from a Reverse Mortgage. The
proceeds from a reverse mortgage can be used for anything, whether its
to supplement retirement income to cover daily living expenses, repair
or modify your home (i.e., widening halls or installing a ramp), pay
for health care, pay off existing debts, buy a new car or take a
"dream" vacation, cover property taxes, and prevent foreclosure. Back to Top
How Does the Interest Work on a Reverse Mortgage.
With a reverse mortgage, you are charged interest only on the
proceeds that you receive. Most reverse mortgages charge a variable
interest rate (although fixed rate products are entering the
marketplace) that is tied to an index, such as the 1-Yr. Treasury Bill
or the London Interbank Offered Rate (LIBOR), plus a margin that
typically adds an additional one to three percentage points onto the
rate you're charged. Interest is not paid out of your available loan
proceeds, but instead compounds over the life of the loan until
repayment occurs. Back to Top
Are There Any Special
Requirements to Get a Reverse Mortgage. As long as you own a home, are at least 62, and have enough equity
in your home, you can get a reverse mortgage. There are no special income or medical requirements. Back to Top
What If I Have An Existing Mortgage. You
may qualify for a reverse mortgage even if you still owe money on an
existing mortgage. However, the reverse mortgage must be in a first
lien position, so any existing indebtedness must be paid off. You can
pay off the existing mortgage with a reverse mortgage, money from your
savings, or assistance from a family member or friend. For example,
let's say you owe $100,000 on an existing mortgage. Based on your age,
home value, and interest rates, you qualify for $125,000 under the
reverse mortgage program. Under this scenario, you will be able to pay
off ALL the existing mortgage and still have $25,000 left over to use
as you wish. If, however, you only qualify for $85,000, then you would
need to come up with $15,000 from your own savings to get the reverse
mortgage. Even then, all the money from the reverse mortgage will have
been used to pay off the existing mortgage. On the other hand, you
won't have a monthly mortgage payment anymore. If you find yourself in
a deficit situation where you don't have enough money to pay off the
existing mortgage, you may use funds from a grant or gift from a family
member or friend to cover the gap, but you cannot incur a new debt
obligation unless the loan is secured by an acceptable asset(i.e.,
loan). Back to Top
What Is the Service Fee Set-Aside. Under
the FHA HECM program, you are charged a monthly servicing fee that
ranges from $30-$35 to manage your account once the loan closes. The
SFSA is an estimate of what the total servicing fees will be over the
life of the loan, by multplying your life expectancy (converted from
years into months) multiplied by either $30 or $35. Although it's not
considered a closing cost, the SFSA can equal several thousand dollars,
which is deducted from your available loan proceeds. You do not have
access to that money, nor do you earn interest. Back to Top
Will I Lose My Government Assistance If I Get a Reverse Mortgage.
A reverse mortgage does not affect regular Social Security or
Medicare benefits. However, if you are on Medicaid, any reverse
mortgage proceeds that you receive must be used immediately. Funds that
you retain would count as an asset and could impact Medicaid
eligibility. For example, if you receive $4,000 in a lump sum for home
repairs and spend it all the same calendar month, everything is fine.
Any residual funds remaining in your bank account the following month
would count as an asset. If the total liquid resources (including other
bank funds and savings bonds) exceed $2,000 for an individual or $3,000
for a couple, you would be ineligible for Medicaid. To be safe, you
should contact the local Area Agency on Aging or a Medicaid expert. Back to Top
Why Do I Need to Get Counseling.
Counseling
is one of the most important consumer protections built into the
program. It requires an independent third-party to make sure you
understand the program, and review alternative options, before you
apply for a reverse mortgage. You can seek counseling from a local
HUD-approved counseling agency, or a national counseling agency, such
as AARP (800-209-8085), National Foundation for Credit Counseling
(866-698-6322), and Money Management International (877-908-2227).
Counseling is required for all reverse mortgages and may be conducted
face-to-face or by telephone except in certain states such as North
Carolina that require face-to-face counseling. By law, a counselor must
review (i) options, other than a reverse mortgage, that are available
to the prospective borrower, including housing, social services, health
and financial alternatives; (ii) other home equity conversion options
that are or may become available to the prospective borrower, such as
property tax deferral programs; (iii) the financial implications of
entering into a reverse mortgage; and, (iv) the tax consequences
affecting the prospective borrower’s eligibility under state or federal
programs and the impact on the estate or his or her heirs. Back to Top
When Do I Pay Back My Loan.
No monthly payments are due on a reverse mortgage while it is
outstanding. The loan is repaid when you cease to occupy your home as a
principal residence, whether you (the last remaining spouse, in cases
of couples) pass away, sell the home, or permanently move out. The
amount owed can never exceed the value of your home. Furthermore, if
the home is sold and the sales proceeds exceed the amount owed on the
reverse mortgage, the excess money goes to you or your estate. Back to Top
Under What Circumstances Should I Not Consider
a Reverse Mortgage. Because
of the upfront costs associated with a reverse mortgage, if you intend
to leave your home within 2-3 years, there may be other less expensive
options to consider, such as home equity loans, no-interest loans or
grants that may be offered by your county government or a local
non-profit to repair your home, or a tax deferral program, if you're
having problems paying your property taxes. Also, if you want to leave
your home to your children, then you should consider other options,
because in many cases, the home is sold to pay back a reverse mortgage. Back to Top
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