What is a reverse mortgage?
A reverse mortgage—or Home Equity Conversion Mortgage (HECM)—is a special type of loan that allows a homeowner to convert a portion of the equity in their home into cash. It allows homeowners to eliminate monthly mortgage payments* and even gain tax-free** funds without losing the title to their home. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer live(s) in the home as his principal residence. Liberty focuses exclusively on FHA-insured HECM reverse mortgages.
How do clients qualify?
Clients must be 62 or older and own a home with sufficient equity that they live in as a primary residence. Generally, there are no credit score requirements. If your client currently has a mortgage, that’s okay — we can pay it off with the reverse mortgage loan proceeds.
How can my clients use the money?
Once any existing mortgage is paid off, the net proceeds from a reverse mortgage can be used for any purpose, from making ends meet to living your retirement dreams. The top reasons borrowers typically give for using their funds are:
- Paying off debts, primarily mortgage and credit cards
- Home repairs and remodeling
- Living expenses
- Health care or long-term care
- Easing the financial burden on their children
- Grandchildren’s education
Will my clients lose their home?
Your client remains the homeowner and he can stay in the home for as long as he desires. The HECM program is regulated and insured by the FHA. The homeowner will not be forced to sell or move. And no payments are due on the reverse mortgage until your client no longer lives in the home as their primary residence. The borrower must also continue to meet the obligations of the loan such as paying property taxes and insurance and maintaining the home according to FHA guidelines.
If no monthly payments are required, how is the reverse mortgage paid back?
This isn’t a home equity loan. The loan is paid back when your client moves out of the home, sells it, the last borrower on title passes away or when the borrower fails to meet the obligations of the loan.
What if my client wants to leave the home to the kids?
Your client can still leave it to his children or to anyone he chooses. The heirs can pay off the loan any number of ways, including:
- Selling the house.
- Refinancing the debt.
- Using other funds to pay off the reverse mortgage.
How much cash can my client receive?
The amount depends on your client’s age; current interest rates; and the lesser of the appraised value of the home, the sale price, or the maximum lending limit.
Are there any costs?
As with any loan, there are closing and other costs, most of which can be financed as part of the loan.
Will my client have to pay any taxes?
In general, the money received should be tax-free as it is not considered income by the IRS. The borrower should consult their financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Will this loan affect my client’s Social Security or Medicare benefits?
A reverse mortgage loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. However, some needs-based government benefits, such as Medicaid and Supplemental Security Income (SSI), may be affected by a reverse mortgage loan. The borrower(s) should consult a qualified professional to determine if there would be any impact to their government benefits.
|*||The borrower(s) must live in their home as their primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.|
|**||The borrower(s) should consult their financial advisor and appropriate government agencies for any effect on taxes or government benefits.|