Frequently Asked Questions Listed below are some of the most popluar questions that people ask when they are investigating Reverse Mortgages. If you don't see your question, please click on the 'Contact Us" button to send us a question. What is a Reverse Mortgage? How is it different from a home-equity loan? Who can get one? How much cash can you get? How is it paid to you? What happens to your debt? Why is it called "reverse"? When do you pay it back? What do you owe? What's the most you can owe? How do you pay it? What's the out-of-pocket cost? What are the other costs? What's the total cost? What is it worth? What about public benefits? What about taxes? What about "borrowing"? What about "spending"? What is a Reverse Mortgage? A REVERSE Mortgage is a special type of mortgage loan. It is guaranteed by the Federal government and allows homeowners age 62 and older to take the equity out of their home in the form of tax-free cash. There is no repayment necessary for as long as you live there - that means no monthly payments! Back to Top How is it different from a home-equity loan? With a reverse mortgage, you don't have to make monthly loan payments. Your income, credit history or your ability to re-pay has nothing to do with getting approved for this type of loan or the amount of the loan. With most home loans, if you fail to make your monthly repayments, you could lose your home. But with a reverse mortgage, that can't happen. Back to Top Who can get one? ANY homeowner who is at least 62 years of age or older. Your home generally must be your "principal residence" - which means you must live in it more than half the year. For the federally-insured "Home Equity Conversion Mortgage" (HECM), your home must be a single-family property, a 2-4 unit building, or a federally-approved condominium or planned unit development (PUD). For Fannie Mae's "HomeKeeper" mortgage, it must be a single family home, PUD, or condominium. Co-ops 'may' qualify. Please contact us for further information. If you have any debt against your home, you must either pay it off before getting a reverse mortgage or use the funds from the reverse mortgage to pay it off. Back to Top How much cash can you get? For all but the most expensive homes, the federally-insured "Home Equity Conversion Mortgage" (HECM) generally provides the most cash. Within each program, the amount of cash you can get depends on the age(s) of the owner(s), the value (and in some cases the location) of the home, and current interest rates. In general, the most cash goes to the oldest borrowers living in the homes of greatest value at a time when interest rates are the lowest. Back to Top How is it paid to you? That's up to you. You could take what is available to you in the following ways: - an immediate cash advance at closing. - a creditline account that lets you take cash advances whenever you choose during the life of the loan. - as a monthly payment for as long as you live in your home. - a set dollar amount for a specific number of years that you select . Or - you can use any combination of the above choices to tailor a plan that suits your specific needs. - as any combination of the above! Back to Top What happens to your debt? It grows larger as you keep getting cash advances, make no repayment, and interest is added to the amount you owe (your "loan balance"). That's why reverse mortgages are called "rising debt, falling equity" loans. As the amount you owe (your debt) grows larger, your equity (that is, your home's value minus any debt against it) generally gets smaller. This is a function of the way the loan operates. Naturally, without making monthly payments, you will have a loan balance that increases - this is okay. Back to Top Why is it called "reverse"? Yes. In a "forward" mortgage (the kind you normally use to buy a home), your regular monthly repayments make your debt go down over time until you have it all paid off. Meanwhile, your equity is rising as you owe less and less, and as your property value grows (appreciates). So forward mortgages are "falling debt, rising equity" loans - just the opposite of reverse mortgages. Here's another way to think of it. In a forward mortgage, you use debt to turn your income into equity. In a reverse mortgage, you use debt to turn your equity into income. You are reversing the deal you used to buy your home. Then, you had income and wanted equity. Now, you have equity and want income. In both cases you use debt to turn what you have into what you want. Back to Top When do you pay it back? When the last surviving borrower dies, sells the home, or permanently moves away. "Permanently" generally means you have not lived in your home for 12 months in a row. You might also have to pay it back if you fail to pay your property taxes, fail to keep up your homeowner's insurance, or let your home go to waste. Just remember, reverse mortgage borrowers are still homeowners and therefore are still responsible for taxes, insurance, and upkeep. Back to Top What do you owe? The total amount you will owe at the end of the loan equals all the cash advances you've received, plus interest. Interest rates can change based on changes in published indexes. But the more adjustable they are, the lower they start - so they give you larger cash advances. And they will be lower than less adjustable rates all during the time that index rate changes don't exceed the caps on the less adjustable rates. Back to Top What's the most you can owe? You can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are "nonrecourse" loans, which means that in seeking repayment the lender does not have recourse to anything other than your home. They cannout touch your income, your other assets, or your heirs. So even if you receive monthly loan advances until you are aged 165, your home declines in value between now and then, and the total of monthly advances becomes greater than your home's value - you can still never owe more than the value of your home. If you or your heirs sell your home in order to pay off the loan, the debt is generally limited by the net proceeds from the sale of your home. Back to Top How do you pay it? If you sell and move, you would most likely pay back the loan from the money you get from selling your home. But you could pay it back from other funds if you had them. If the loan ends due to the death of the last surviving borrower, the loan must be repaid before the home's title can be transferred to the borrower's heirs. The heirs could repay the loan by selling the home, using other funds from the borrower's estate or their own funds, or by taking out a new forward mortgage against the home. Back to Top What's the out-of-pocket cost? The out-of-pocket cash cost to you is most often limited to an appraisal fee used to determine the value of your home and a minimal credit check (to see if you are delinquent on any federally-insured loans). Most of the other costs can be "financed" with the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe - and pay interest on. Back to Top What are the other costs? The specific cost items vary from one program type to another. Many of them are of the same as found on "forward" mortgages: interest charges, origination fees, and whatever third-party closing costs (title search & insurance, surveys, inspections, recording fees, mortgage taxes) are required in your area. Although total loan costs between the HECM and HomeKeeper programs can vary, many of the individual cost items within each program do not vary from one lender to another. Within each program, the costs that may be different from one lender to another are generally the origination fee and the servicing fee. So if you've decided on HECM you want to get the best deal, these are the specific fees to compare. The largest total cost differences you will find are the ones between different programs, for example, between the HECM and HomeKeeper programs. But it is virtually impossible to evaluate or compare the true, total cost of reverse mortgages unless you consider their Total Annual Loan Cost (TALC) rates. Back to Top What's the total cost? Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes ALL of the costs and benefits, and also takes into account the nonrecourse limits. This Total Annual Loan Cost (TALC) disclosure shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend. Back to Top What is it worth? Only you can decide what a reverse mortgage is worth to you. It probably depends most on what you would use one for: increasing your monthly income, having a cash reserve (creditline account) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life. Back to Top What about public benefits? Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs count loan advances differently than annuity advances. You must be careful to stay within the limits of accumulated cash. For this reason, we recommend that you consult an attorney or specialist in your area for advice. Loan advances generally do not affect your benefits if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a "liquid asset." If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility. Annuity advances reduce SSI benefits dollar-for-dollar, and can make you ineligible for Medicaid. So if you are considering an annuity, and if you are now receiving - or expect someday you may qualify for - SSI or Medicaid, check with the SSI, Medicaid, and other program offices in your community. Get specific details on how annuity income would affect these benefits. Back to Top What about taxes? An American Bar Association guide to reverse mortgages advises that generally the IRS does not consider loan advances to be considered taxable income. Annuity advances, on the other hand, may be partially taxable. Interest charged is not deductible until it is actually paid, that is, at the end of the loan. Back to Top What about "borrowing"? Many of us have been well served by these borrowing cautions: - don't borrow in general - don't borrow against your home in particular - Borrowing usually means using money you haven't earned yet. You borrow today in the hope that you will be able to earn enough in the future to repay it. So you are borrowing against your uncertain future earnings - which sounds like "counting your chickens before they hatch." That's generally not a good idea unless you have a steady job and good prospects. But this caution doesn't really apply to reverse mortgages because you are not borrowing against future income. In fact, you are borrowing against home equity that you have already earned. So you aren't counting your chickens before they hatch. You are hatching the nest egg you've already earned. - "Not Against Your Home" Borrowing against your home usually means paying back a loan every month. But if you lose your job or your income drops, you could miss some payments and lose your home to foreclosure. That's why it's generally not a good idea to borrow against your home unless it's for a very basic purpose. You want avoid jeopardizing your home ownership. But this caution doesn't apply to reverse mortgages either, because no monthly repayment is required. You can't lose your home by missing a payment because there are none to make. Back to Top What about "spending"? Many of us have also been well served by these spending cautions: "You don't know how much you will need and how long you will live. So don't spend your savings. Wait till you really need them." That makes a lot of sense. But - if you literally followed these cautions forever, you would never use any of the money you spend a lifetime building up. And that doesn't make much sense. Why go to the trouble of earning it and saving it if you're never going to use any of it? So in retirement, this spending caution should be amended: - When should you consider using how much savings? Which savings (for example, home equity)? As amended, this caution clearly does apply to reverse mortgages. Because the more home equity "savings" you use now, the less you'll have later. So the questions now become: If you ever do take a reverse mortgage, should you do it now or wait until later to decide? (In the future, you may be eligible for more cash because you will be older and your home may be worth more. On the other hand, interest rates may be higher, and that would decrease the amount otherwise available.) If you take one now, how should you take it: creditline, monthly, or a combination? If you take a creditline, how much of it should you use now versus later? If you take a monthly advance, should you select a specific number of years, for as long as you live in your home, or should you buy an annuity providing lifetime advances no matter where you live? A lot might depend on how much cash you'd qualify for today. Click on the contact button now, so we can have one of our licensed representatives contact you and get you the details you need. Back to Top Back to Top |Welcome| |How It Works| |FAQ| |Misconceptions| |Contact Us| |About Us| |Download| |Listen!| |Internet Links| |Privacy Policy| |Referrals| |Advisor Login| |Video Presentation| Advanced Funding Solutions Inc. 2007