Frequently Asked Questions

1. Who are Reverse Mortgages designed for?

2. Can I take out a Reverse Mortgage if I already have a mortgage on my home?

3. Will I have any tax liability from the proceeds of my Reverse Mortgage?

4. How will my children’s inheritance be affected by a Reverse Mortgage?

5. Do the proceeds from my Reverse Mortgage affect my Social Security, Medicare or pensions?

6. Can the interest charged on my Reverse Mortgage be deducted on my Income Tax Return?

7. What are the costs associated with a Reverse Mortgage?

8. What amount is due when the loan is repaid?

9. Will I ever owe more that the value of my home?

10. With an FHA Reverse Mortgage, does the lender take title to my house?

11. If there are no payments, then what are my responsibilities as a homeowner in the Reverse Mortgage?

12. When does the loan become due and payable?

13. What are the various ways that I can receive the proceeds of my Reverse Mortgage?

14. How much can I borrow?

15. Why does the Federal Housing Administration require Reverse Mortgage Counseling by an independent third party?

1. Who are Reverse Mortgages designed for?
Reverse Mortgages are designed for homeowners at least 62 years of age who have significant equity in their homes, and want to eliminate their mortgage payment and/or generate additional income.
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2. Can I take out a Reverse Mortgage if I already have a mortgage on my home?
Yes. Any existing mortgage will be paid off at the funding of the new Reverse Mortgage. You can eliminate an existing mortgage payment and effectively increase your monthly cash flow.
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3. Will I have any tax liability from the proceeds of my Reverse Mortgage?
Currently the IRS treats the loan proceeds received from a Reverse Mortgage as loan advances, and they are not taxable.
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4. How will my children’s inheritance be affected by a Reverse Mortgage?
A Reverse Mortgage will likely affect the equity that you have in your home, and reduce the value of your estate available to your children. Most children are more concerned about the financial well being of their parents, and less concerned about their inheritance.
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5. Do the proceeds from my Reverse Mortgage affect my Social Security, Medicare or pensions?
The proceeds from a Reverse Mortgage should not affect these benefits.
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6. Can the interest charged on my Reverse Mortgage be deducted on my Income Tax Return?
The interest accrues, and is deductible only in the year that the interest and principal of the loan is repaid. Since you are not paying a monthly mortgage payment, your interest is accumulating.
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7. What are the costs associated with a Reverse Mortgage?
The most significant costs are typically the FHA mortgage insurance premium and the loan fee. The costs will vary depending on the program selected and the loan amount. In addition, there are other costs associated with the loan like the appraisal, title insurance, escrow fee, etc. All of these costs are typically financed in the reverse mortgage.
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8. What amount is due when the loan is repaid?
The borrower or his/her estate will pay back all of the loan advances, including any servicing fees, mortgage advances, including servicing fees, mortgage insurance premiums and all accumulated interest.
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9. Will I ever owe more that the value of my home?
Because all FHA Reverse Mortgages are non-recourse, you will not be required to pay more than the value of your home, even if the loan balance exceeds the value of your home. On the other hand, if when the loan is repaid, the value of the house exceeds the loan balance, then the proceeds would go to you or to your estate.
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10. With an FHA Reverse Mortgage, does the lender take title to my house?
An FHA Reverse Mortgage is a loan against the property. The title to the property remains in the name of the owner.
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11. If there are no payments, then what are my responsibilities as a homeowner in the Reverse Mortgage?
You must occupy the home as your primary residence, pay your property taxes and homeowners insurance, and maintain the condition of the property.
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12. When does the loan become due and payable?
The loan becomes due and payable when the last remaining borrower sells the property, permanently leaves the home, or passes away. Until one of these events occurs you make no payments to the lender.
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13. What are the various ways that I can receive the proceeds of my Reverse Mortgage?
You may receive all of the proceeds at the time of initial funding. You may receive the proceeds in a line of credit to be drawn as you wish. You can receive a monthly income stream over your anticipated life expectancy, or if you wish you can receive the proceeds over a specific number of months. Finally, you may be able to receive the proceeds through a combination of these disbursement methods.
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14. How much can I borrow?
The maximum loan amount is based upon the value of the property, the age of the youngest borrower, and the interest rate. The maximum FHA loan is based upon a maximum value of $625,000.
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15. Why does the Federal Housing Administration require Reverse Mortgage Counseling by an independent third party?
A Reverse Mortgage borrower is required to receive counseling from an independent party when applying for a Reverse Mortgage. This counseling session is designed to protect the borrower by providing information about Reverse Mortgages from an independent third party approved by FHA. The counseling session can be conducted by phone or in person. The cost of counseling may vary based upon the service provider selected by the borrower. The cost of counseling cannot exceed $125.00.
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