Aren’t reverse mortgages much more costly than other mortgages?

Not at all. The truth is that closing costs average only about 1% more than that of a regular FHA mortgage on the same property. If you compared the reverse mortgage to many other conventional mortgages, the reverse mortgage could actually be lower in cost due to the fact that conventional mortgages can charge more than the 2% origination fee allowed on all reverse mortgages. The cost of a reverse mortgage compares to the average cost of selling your home. When you consider the cost of then purchasing a new home, it’s not even comparable. Additionally, if a reverse mortgage allows you to stay in your home with no monthly payments for even five years, instead of going into an assisted living facility or nursing home, it more than pays for itself.

Can I sell my home and use a reverse mortgage to purchase a new home?

One interesting feature of the some newer reverse mortgages that are available is that you can use the program to purchase a new home – all in a single transaction. The transaction reduces the out-of-pocket cash needed to buy a new home, eliminates any new monthly mortgage payment, and helps you keep more of the sales proceeds from the old house – or a larger amount of savings – to use for other purposes. For example, let’s say a 75-year-old woman sells her home in Pennsylvania for a $100,000 profit and wants to buy a new home in Florida costing $150,000. To avoid a mortgage payment on the new house, she would need to pay $50,000 in cash. This means she would have to use the entire $100,000 from the sale of her first home, plus another $50,000 from her savings. If she doesn’t have the $50,000, she couldn’t buy the new house, unless she qualifies for a new home mortgage, which might be difficult and which in any event would require making monthly mortgage payments again. Alternatively, the woman could qualify for about a $100,000 reverse mortgage, purchase the new home outright, or nearly so, using money from the reverse mortgage, plus the $50,000 of the profit on her Pennsylvania home. She would be in her new home with no monthly payments and approximately $50,000 in her savings account. This type of reverse mortgage might be used, for instance, by older homeowners, who want to sell their old home … Continue reading

Isn’t it selfish to get a reverse mortgage rather than leave my home equity to my children?

Some potential reverse mortgage candidates are concerned they will have less home equity to leave their heirs – until they actually speak with their heirs. Many adult children want to see their parents living comfortably and enjoying their retirement rather than struggling just to leave something behind when they die. Besides, a reverse mortgage can actually grant seniors the freedom to help their children and grandchildren with expenses while they are still alive and to see them enjoy it. And don’t forget: your heirs will still receive the remaining equity after the loan is repaid. Some people even use some of their Reverse Mortgage proceeds to purchase a life insurance policy to insure that their heirs will receive a fixed amount in addition to the remaining home equity.

What if I change my mind?

Relax – even after you close your reverse mortgage, you still have a chance to reconsider. Should you decide for any reason that you no longer want the loan, you have three days to cancel.

Are there any restrictions on how I use my reverse loan proceeds?

Nope! It’s your money. There are no restrictions on how your proceeds are used. Medical care, property taxes, condominium assessments, home repairs, help with a grandchild’s college costs, or just to improve your quality of life are just some of the ways you may use your money.

Are there any restrictions I should be aware of?

During your loan period, there may be restrictions for: Renting out your home Adding new owners to the home’s title Changing your home’s zoning classification Taking out new debt against your home, or Filing for bankruptcy

Will my children be responsible for repayment of the reverse mortgage?

No. A reverse mortgage is what is called a non-recourse loan. This means the bank can never come after any person or estate for repayment of the loan. The bank can only use the value of the home as repayment. Your children may, however, either sell your home or take out a new mortgage, after you leave your home, in order to receive the equity still in the home. Most Reverse Loans typically allow your heirs six months to a year to pay off the Reverse Mortgage through a sale or re-mortgage.

If I get a reverse mortgage – does the bank own my home?

Absolutely not. With a reverse mortgage – you still own your home. Of course, that means you must continue to pay your property taxes, make necessary repairs to the home, and keep home-owner’s insurance.

My house is not paid off yet – can I still get a reverse mortgage?

Absolutely – as long as your equity is greater than the amount you still owe. You can either pay off the old debt before you get a reverse mortgage, or you can use the initial proceeds from the reverse mortgage to pay the debt.

What are the Costs of a Reverse Mortgage?

Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, apply to reverse mortgages too. You can expect to be charged an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs. In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage. Below is a more in-depth explanation of each type of fee. Origination Fee The origination fee covers a lender’s operating expenses—including office overhead, marketing costs, etc.—for making the reverse mortgage. Under the HECM program, which accounts for 90 percent of all reverse mortgages made in the U.S., the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount (i.e., county FHA loan limit). Currently, the FHA loan limit varies from a low of $200,160 (for rural areas) to a high of $362,790 (for high-cost metropolitan areas). Therefore, the 2 percent origination fee generally ranges between $4,003 (2 percent of $200,160) and $7,256 (2 percent of $362,790). With proprietary loans, borrowers are charged an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage. Mortgage Insurance Premium Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim … Continue reading

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