Reverse Mortgage - Facts
A Home Equity Conversion Mortgage (HECM), or Reverse Mortgage, is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid back to you. Unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
What are the benefits of a Reverse Mortgage?
- Tax free income from your home.
- More money in your pocket to do what you want with, such as travel.
- You will still own your home!
- No monthly mortgage payments required.
Frequently Asked Questions
What types of homes are eligible?
- Single-family, 2- to 4-unit multifamily, modular, Planned Unit Development (PUD) and condominium homes are eligible. Manufactured homes may be eligible. The property must be your primary residence.
What if I have an existing mortgage?
- You may be eligible for a reverse mortgage even if you still have an existing mortgage. However, the existing mortgage will need to be paid off with your reverse mortgage proceeds or from another allowable source.
Are there homeowner’s insurance and property tax requirements?
- Yes. It is your responsibility to maintain an acceptable amount of property insurance, including flood insurance where necessary. You are also responsible for paying your property taxes.
Can I use a reverse mortgage to purchase a home?
- Yes, you can use the proceeds to purchase a home. You would need to make a down payment and apply the proceeds from your reverse mortgage at the time of purchase. The down payment is determined by the home value minus the amount of proceeds received from the reverse mortgage (after subtracting loan costs). You will not need to make monthly reverse mortgage payments while you live in the home or until a maturity event occurs.
What are the costs of a reverse mortgage?
- Costs include origination and processing fees, third-party closing costs (just like a first mortgage) and possibly FHA mortgage insurance. Most of these costs can be financed into the loan, and may vary depending upon which product you select. In addition, there may be a counseling fee that will be collected up front or financed within the loan.
How much of my home’s equity can I access?
- Loan amounts vary based on the reverse mortgage product chosen, the ages of the borrowers, the appraised market value of the home and current interest rates.
How will I access the proceeds from my reverse mortgage?
- Access methods vary based on which product you select. You can choose to receive the proceeds in a single lump sum, through regular monthly installments, by drawing from a line of credit at your discretion or any combination of these options.
How can I use the proceeds I receive?
- You can use the proceeds for anything you choose. For example you can pay for medical, prescription and long-term care costs, make home improvements, cover unexpected expenses, etc. The decision is yours.
Are the proceeds I receive taxable?
- Loan advances from a reverse mortgage are generally not considered taxable income. This means the proceeds you receive from a reverse mortgage are generally tax-free. Please consult a tax professional.
When will the loan become due?
- Circumstances that cause the loan to become due include, but are not limited to: 1) the last surviving borrower(s) permanently moves out of the home or passes away; 2) the last remaining borrower(s) fails to live in the home for 12 consecutive months; 3) the borrower(s) fails to pay the property taxes or insurance; or 4) the property deteriorates beyond what is considered reasonable.
If I decide to pay back the loan early, will I incur any penalties?
- No. The loan can be paid back at any time, and you will not be charged any fees for paying early.
Can I still leave my house to my kids?
- Yes you can leave your home to your heirs. Your home will always remain your home. You may leave it to whomever you wish. When you pass away your heirs will have options for paying off the loan. After the debt is repaid, any remaining equity (if they choose to sell it) will go to your heirs.
Who will help me through this process?
- A dedicated Bay Equity reverse mortgage specialist is available every step of the way to answer your questions and help ease any concerns you have.