A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.

The reverse mortgage is aptly named because the payment stream is 'reversed.' Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Eligible property types include single-family homes, manufactured homes (built after June 1976), qualified condominiums, and townhouses.

Use of Funds

The funds from a reverse mortgage can be used for anything. Common uses include supplementing retirement income to cover daily living expenses; repairing or modifying your home (i.e., widening halls or installing a ramp); covering health care expenses; paying off existing debts; taking a vacation; paying property taxes; and preventing foreclosure.

There are no income or medical requirements to qualify. You may be eligible for a reverse mortgage even if you still owe money on an existing mortgage. However, you must qualify for a large enough reverse mortgage to pay off the existing loan entirely.

Payment Options
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments (for up to life), 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.

The amount of money you get from a reverse mortgage depends upon your age (or age of youngest borrower in the case of couples), appraised home value, current interest rates, and 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.

Impact on Government Assistance Programs

A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you receive a lump sum payment, any amount retained the month after would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 for home repairs and spends it 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.

Mandatory Counseling

Before applying for a reverse mortgage, you must first meet with a counselor. The counselor's job is to educate you about reverse mortgages, answer your questions, and offer alternative options depending on your situation. This can be completed by phone.

A list of approved counseling agencies nationwide is posted online by the U.S. Department of Housing and Urban Development.

Paying Back Your 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.

                               (information provided by Carmine J. Rappucci, Member NRMLA)

    Questions? Or to see if a Reverse Mortgage can help you!    

                           Call Carmine (800) 936-6050 x 20

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