What is a Reverse Mortgage? A reverse mortgage is a unique financial tool that enables seniors to tap into their home’s equity, receiving either a monthly income, lump sum or cash, or a line of credit. It is what we call “Home Made Money®“. There are no income or credit qualifications, and there is no repayment until the homeowner permanently leaves the home. The borrower retains full ownership of the property. Reverse mortgages are FHA/HUD insured.
What about taxes? Proceeds from a reverse mortgage are considered to be a loan, not income. Therefore the funds received are not subject to income tax.
Social Security Benefits, Medicare, and Medicaid? Your social security benefits, including Medicare, are not affected with the income from a reverse mortgage. Borrowers receiving Medicaid or SSI may not be affected if the funds from the reverse mortgage are spent in the month they are received. However, we do recommend that you consult your tax advisor or case worker for further details.
Who is eligible for a reverse mortgage? Applicants must be at least 62 years of age and must own their home. The mortgage may be placed on their permanent residence only, not a vacation property. The owner needs to have enough equity in the home that the reverse mortgage will pay off any amount that is still owned on the home.
Are there restrictions on what you can use the money for? There are absolutely no restrictions on what you can use the money on from a reverse mortgage, after any existing mortgage(s) are satisfied. Here are some examples:
Why is counseling required? All Borrowers are required to receive counseling from a third-party counseling agency prior to applying for a reverse mortgage. This counseling makes sure that you fully understand the concept of a reverse mortgage, and also helps you investigate other options other than a reverse mortgage. Your reverse mortgage loan officer will have a list of counselors in your area, and can refer you the counselor nearest you.
When and how do I receive the actual funds? There are different ways that you can receive the funds from a reverse mortgage. You can take it in a lump sum, a line of credit, for specified monthly term, or you can take a monthly payment for the rest of your life. No funds can be distributed until three days after closing. Each method has different benefits and should be considered.
How much money can I get? There are three factors that determine how much money you can get out of the equity of your home: your age, the value of your home, and the interest rate at the time of closing. The older you are beyond 62 the more money you can receive. Of course, the higher the interest rate, the fewer dollars you can receive. So, it is these factors together that formulate how much money you can receive.
This sounds good, what are the drawbacks? While a reverse mortgage gives the homeowner liquidity, there are some factors to consider. While no money is required up front to obtain a reverse mortgage, there are expenses that are added to the loan balance. They usually amount to about 5% of the loan amount. Also to consider, is how long you want to live in the home. If the person intends to leave the home in a few years, the Reverse Mortgage becomes an expensive loan, after incurring the up front fees, and might not make sense.
Where can I get more information? If you would like an estimate as to what a Reverse Mortgage can do for you, arrange your no-obligation visit by calling us today at 407-869-9800 or by clicking here.