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Frequently Asked Questions about Reverse Mortgages

Q. What is a reverse mortgage?
A. A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the home.

* Consult Tax Advisor. Not all products available in all states.

Q. Can the borrower's current income influence their ability to get a reverse mortgage?
A. While reverse mortgage borrowers need not make monthly repayments, there is a requirement to complete a thorough financial assessment to be sure the borrower has the ability to maintain the property as well keep the taxes, insurance and other associated costs of owning a property current. 

Q. Borrowers have heard that with a reverse mortgage the lender would own their home. Is this true?
A. It´s absolutely false. The borrower retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.

Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses − just as they would with a standard first mortgage or home equity loan.

Q. Would a home that is in a "living trust" be eligible for a reverse mortgage?
A. Yes. In most cases a homeowner who has put his or her home in a living trust can usually take out a reverse mortgage. A review of the trust documents would be made by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.

Q. What has to be repaid when the loan becomes due?
A. When the last surviving borrower permanently moves out of the home or dies, the reverse mortgage loan becomes due. The reverse mortgage principal, interest charges, service fees, and any closing costs are paid from sale of the house. It´s important to remember that the borrower can never owe more than the home´s appraised value* at the time of repayment.

* As determined by an approved appraiser.

Q. If a borrower takes a reverse mortgage, will they still have an estate that they can leave to their heirs?
A. When a borrower sells their home or no longer uses it for their primary residence the lender must be prepaid for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to the borrower or their heirs. It´s important to remember that the borrower can never owe more than the home´s appraised value* at the time of repayment.

* As determined by an approved appraiser.

Q. Must the heir or the last surviving borrower sell the property to repay the reverse mortgage loan?
A. No. Repayment may be accomplished by refinancing the reverse mortgage with a traditional "forward" mortgage loan, or through the use of other assets.

Q. Other than repaying the principal and interest, what kinds of fees are involved in a reverse mortgage?
A. Most reverse mortgages have an application fee (which may cover the cost of a credit report and an appraisal), an origination fee, closing costs, insurance, and a monthly servicing fee. These charges can be paid by the reverse mortgage itself, making them no immediate burden to the borrowers; the costs are added to the principal and paid at the end, when the loan becomes due. If the application is NOT approved a borrower is responsible for the cost of the HUD approved agency counseling (if completed) AND possibly the cost of an appraisal if completed.

Q. Borrowers must meet with an unbiased counselor before completing their reverse mortgage application. What does that accomplish?
A. This is a federally mandated feature of the reverse mortgage process and is designed for the borrower´s protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pros and cons of all your reverse mortgage alternatives. He or she will discuss a reverse mortgage´s costs and financial implications, should tell the borrower about any government or nonprofit programs for which they may qualify, and advise the borrower on any proprietary reverse mortgages that may be available in their area. Prepare your borrowers and discuss alternatives before counseling is scheduled.

These materials are not from HUD or FHA and were not approved by HUD or a government agency.