Reverse Mortgage FAQ
Look through our list of Frequently Asked Questions to check if we’ve already covered your question.
We have ordered the list of questions according to where during the loan process they normally occur. Reading through the FAQ from top to bottom should take you through the entire process. To further review the steps in getting a reverse mortgage, click here.
What are the requirements to get a reverse mortgage?
The requirements you need to meet to be eligible for reverse mortgage are the following:
- You must be at least 62 years old.
- You should own a home and it should have enough equity.
There are no medical requirements to pass.
Will my home qualify?
Only co-op homes are not qualified to be used in a reverse mortgage. This means you can qualify if your home is single-family home, a condominium, townhouse, manufactured home (built post June 1976), and even 2-4 unit properties.
Will a reverse mortgage affect government benefits?
Social Security and Medicare benefits will not be affected by a reverse mortgage. On the other hand, if you’re receiving Supplemental Security Income and/or Medicaid, any unused proceeds may affect your eligibility for those programs. For example, Medicaid is only available to individuals with maximum $2,000 worth of assets and to couples with maximum $3,000 worth of assets. Reverse mortgage proceeds that remain in your bank account count towards this asset limit.
When should I not get a reverse mortgage?
You would be better off not going for a reverse mortgage if:
- You intend to leave your home within three years’ time.
- You wish to leave your home as inheritance for your children or heirs.
In the first case, there may be other less-costly loan options than a reverse mortgage, which is designed to be repaid after many years of residence. On the second, homes in a reverse mortgage are typically sold to pay back the balance, which is difficult if you wish to leave it as legacy.
What payment options do I have in receiving my reverse mortgage proceeds?
You can either choose to receive the proceeds in a lump sum, in fixed monthly payments, as a line of credit, or in any combination of these.
What if my home needs repairs?
Because the home must meet HUD minimum standards, you may be required to complete home repairs as part of the condition of getting a reverse mortgage. You will need to sign a Repair Rider which notes your agreement to complete required repairs before a certain date. The cost of the repairs can be later paid from the proceeds of the reverse mortgage loan.
How much money can I get from a reverse mortgage?
The final loan amount you can get will be calculated based on the following factors:
- your age
- the market value of the home
- the interest rate
- FHA lending limit (for homes valued at more than $625,000)
In general, the older you are and the more expensive the home, the more funds you can get. Also, note that you need to pay off any existing mortgage on the home, and you may settle that with the proceeds from the reverse mortgage loan. However, doing so will affect the actual amount that you will get.
Why are there two Mortgages and Notes to be signed during closing?
The two sets of documents correspond to your lender being in first lien position, and the FHA in a second lien position. The FHA will step in if for any reason your lender is unable to fulfill its obligations under the Loan Agreement. This ensures that your access to funds will be intact.
What is the Right of Rescission?
The right of rescission allows you to cancel your reverse mortgage loan within three business days after the closing date. Actual disbursement of funds occurs only after these three days have passed. You will not be charged any interest during this time and will only start accruing when disbursement begins. This right to rescind your contract is borrower protection created by Regulation Z of the Truth in Lending Act.
How much of the loan amount can I immediately get?
Within the first 12 months after closing, you are limited to being able to access no more than 60 percent of the available amount. On the 13th month and onwards, you can then access as much as you wish.
When do I begin receiving monthly payments?
If you chose to receive fixed monthly payments, you will receive the first one on the first business day of the month after your loan funding date. For example, if your reverse mortgage closed and got funded in September, you will receive the first monthly payment on the first business day of October.
Are there restrictions on how I can use the loan proceeds?
Funds from a reverse mortgage can be used for anything. You can use it to pay for your daily living expenses, home repairs or renovations, medical treatments, long-term care, or even to settle other debts.
Can I change how I receive my reverse mortgage funds?
You can still change the payment plan you chose at closing if you have an HECM (Home Equity Conversion Mortgage) and if it specifically allows for it. There will usually be a fee for this request, and it’s recommended to discuss your payment plan options and possible changes thoroughly before closing.
When do I receive a statement of account from the lender?
You will receive a statement of account for every activity on the line of credit and whenever there are rate changes that will affect your reverse mortgage. In addition, you will also receive an annual statement of account no later than January 31st of each year, which will provide a summary of all activities, charges, interest and balance on your account.
Can I make prepayments to my account?
For most reverse mortgages, partial prepayment can be permitted without penalty. Make sure to discuss partial prepayments with your loan servicer prior to closing.
How does the interest on a reverse mortgage affect the loan balance?
Interest only accrues on the amount you’ve actually received, not the total amount available. This interest does not subtract from the remaining funds you have available, but it will compound over the years until the loan matures. You can choose to have fixed or variable rates, which will be commonly tied to a market index. An additional 1-3% will also be included on the interest rate.
What is a Tax Set Aside?
You can choose to have your loan servicer to take care of property taxes using funds from the reverse mortgage. An amount based from the number of years you’d like to have this paid on your behalf will be set aside from your available funds and used to pay these taxes. This can be useful for those who wish to automate these payments, as not keeping current on your property taxes can result in default of the loan.
What happens to my reverse mortgage if I file for Bankruptcy?
For HECMs, filing for Bankruptcy is not considered a default for the loan. However, you will only be able to access reverse mortgage funds if the request is approved by the court or the trustee. If your reverse mortgage is not an HECM, speak with your loan servicer to determine if bankruptcy is considered a default in your loan agreement.
What is a maturity event?
A maturity event triggers the reverse mortgage loan to become due and payable. No additional funds can be taken from the loan and steps must be taken to pay off the loan balance. Maturity events happen when:
- All borrowers pass away.
- The title of the home is passed to a third party.
- The home is no longer the principal residence of at least one borrower.
- The borrower fails to keep current on property taxes or insurance.
- If the borrower is unable to complete repairs in due time.
Can I settle my reverse mortgage account before it becomes due and payable?
Yes, you can pay off your loan balance at any time even without any maturity events occurring.