Reverse Mortgage Information

Reverse Mortgage Information - For seniors who are house rich but cash poor, a reverse mortgage offers a means to borrow against the equity in their homes without having to sell or make monthly loan payments.

Reverse mortgages, also known a Home Equity Conversion Mortgages (HECM), are typically used to help fund home improvement or health care expenses.

How does a reverse mortgage work?

The reverse mortgage process is relatively simple. The amount the homeowner can borrow is determined by an FHA formula that considers the age of the youngest borrower, the current interest rate, and the value of the home. Generally, the older the homeowner, the lower the interest rate will be; the more valuable the home, the higher the loan amount will be. Based on these calculations, the borrower determines the value of their loan and chooses payment from one of three options:

  • Lump sum in cash

  • Equal payments for as long as both borrowers live in the home

  • Equal payments for a set period of time
The loan doesn't have to be repaid until the last surviving homeowner moves from the property or passes away. At this time, the estate has 12 months to repay the balance of the reverse mortgage. If the balance is not paid by the estate, the home must be sold to settle the loan.

Are the payments taxable?

Any reverse mortgage money that is received is tax-free, and will not affect Medicare or Social Security benefits. However, a reverse mortgage may affect eligibility for state or federal assistance, including Medicaid.

Where can I obtain reverse mortgage information?

Be wary of any service that charges a fee for information regarding reverse mortgages, or charges to speak with an HECM counselor. The FHA (Federal Housing Administration) provides information on reverse mortgages and counseling free of charge. To locate an HECM counselor in your area, phone 800-569-4287.

If you're strapped for cash, a reverse mortgage may provide just the solution you need. As with any loan, research the terms and fees to be sure you're making a sound financial decision.

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