California Reverse Mortgage Loans - Home Loans - Pros and Cons to Reverse Mortgage Loans

The Pros and Cons to Reverse Mortgage Loans

What is a Reverse Mortgage Loan?

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

What are the advantages of a reverse mortgage loan?

There are many advantages in a reverse mortgage, here are the most signifigant:

Independence: A reverse mortgage loan allows you to remain in your home and retain home ownership.
Stay in your home: It allows you to remain in your home and retain home ownership.
No monthly mortgage payments: You need not pay back the reverse mortgage loan or make any monthly mortgage payments until you permanently move out or sell the home.
Tax-free money: Because the money you receive from a reverse mortgage loan is not considered income, it is tax-free* and will not affect your Social Security or Medicare benefits.
Freedom and flexibility: The money you get from a reverse mortgage is yours to use in any way you choose.

What are the requirements and/or restrictions for a reverse mortgage?

Qualifying is easy! You just need to be 62 or older and own your own home with some equity. There are no income, health or credit qualifications. Bad credit is O. K. too, just as long as there are no current government liens against your house. If there are, they simply will need to be paid and can be done through escrow by using the loan proceeds.

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What if I already have a mortgage loan on my home?

It is okay, as long as the existing mortgage doesn't exceed approximately 50% - 75% of the home's value. If you already have a mortgage on your home, the reverse mortgage loan will payoff your existing mortgage. You will no longer have a mortgage payment for as long as you occupy your house as your primary residence. You may also be able to receive additional amount of cash at the closing of your new reverse mortgage, depending on the amount of the existing mortgage that is being paid off.

What are the closing costs, and fees?

Like any loan, there are closing costs and other costs associated with doing a mortgage loan, all of which can be paid by your new reverse mortgage loan with little to NO out of pocket costs and fees to you.

Closing costs and fees for reverse mortgage loans are slightly higher than that of a standard mortgage loan. But here's an important thing to understand. The interest rate on a reverse mortgage is execptionaly less than the rate of a forward mortgage. This is significant because, on average, 80% of the total loan cost is in the mortgage interest rate, not in the closing costs and fees. An additional item to understand and consider is how long you plan on staying in your house. For instance, if your house appraised around $325,000, you may expect closing costs and fees of about $15,000. That sounds like a high number for closing costs, but if you said you plan on staying in your house for about 10 years, the reverse mortgage loan will only have cost you about $125 per month.

Alternatively, if you anticipate moving in the short term, getting a reverse mortgage loan may not be the best for you. The reason is simply because you can only spread those fees over a few years, in turn making the reverse mortgage loan a little more expensive.

How can I receive the money from a reverse mortgage loan?

You can choose to receive all the money at once, and as a lump sum
You can opt to receive equal monthly payments as long as one of the borrowers lives and continues to occupy the house as a principal residence
You can choose to receive equal monthly payments for a fixed term period or number of months
You can get a line of credit*; which allows you to take funds at times and in amounts of your choice until the line of credit is exhausted. This is the most popular choice, chosen by more than 70% of reverse mortgage loan borrowers
You can also opt for a combination of the line of credit with monthly payments for as long as the borrower remains in the house
Or, you can choose any combination of the above

What kind of reverse mortgage loan programs are available?

Federally-Insured Reverse Mortgages:Home Equity Conversion Mortgages (HECM), these are insured by the US Department of Housing and Urban Development (HUD). They are widely available, have no income requirements, and can be used for purpose.
Government-Sponsored Reverse Mortgages:Home Keeper® is a Fannie Mae conventional market alternative to the HUD Home Equity Conversion Mortgage (HECM). It is government sponsored program and works similar to a HECM loan in many ways. However, a Home Keeper® reverse mortgage addresses a few needs that are not met by HECM loans, such as individuals with higher home values, condominium owners, and seniors wishing to use a reverse mortgage loan to purchase a new home or house.
Proprietary Reverse Mortgages:This is a conventional reverse mortgage loan look-a-like. Basically has the same options and features, but is slighty different.

Contact our Reverse Mortgage Loan Specialists today!!!

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What are the experts saying about reverse mortgage loans?

Many financial counselors, advisors, senior advocates and published reports suggest that a reverse mortgage can be a smart way to secure your financial future during retirement. Even the AARP has many educational and information regarding these types of loans, click here for the AARP's Website

What if we want to leave our house to our heirs?

When you sell your house or no longer use it as your primary residence, you or your estate must repay the mortgage lender for the cash received during the reverse mortgage loan, plus interest and the service fees. Any remaining equity belongs to you or your heirs. It’s important to remember that you can never owe more than the house's appraised value when it is sold. None of your other assets will be affected by the reverse mortgage loan. Repayment may be accomplished by refinancing the current reverse mortgage loan into a traditional mortgage loan, or through the use of other assets.

Will my heirs be responsible or owe anything to the lender?

Your heirs will be able to decide whether they wish to keep the house or sell it. If they decide to keep the house, they must pay the mortgage balance due on the reverse mortgage loan. They may sell the home and use the loan proceeds to pay off the mortgage balance due on the reverse mortgage loan. They will get to keep any excess funds and proceeds from the sale of the house.

When does a reverse mortgage loan need to be repaid?

A reverse mortgage loan becomes due and must be paid off in full when one or more of the following conditions occurs: (1) the last surviving borrower passes away or sells the house; (2) all borrowers permanently move out of the house, and no longer occupy the property; (3) the last surviving borrower fails to occupy the house for 12 consecutive months due to physical or mental illness; (4) failure to pay property taxes or insurance; (5) you let the property deteriorate, past what is considered a reasonable amount of wear and tear, and do not correct the problems.

Are there tax consequences? What about my Social Security and Medicare benefits?

Since a reverse mortgage loan is considered loan advances and not an income, the IRS considers them to not be taxable. Similarly, having a reverse mortgage loan should not affect your Social Security or Medicare benefits.

If you receive Social Security Income, Medicaid, or other most other public assistances, a reverse mortgage loan advances are only counted as liquid assets, if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not let your total liquid assets become greater than these programs allow. It is wise to consult your tax account or advisor on more details.

Another tax fact: interest on reverse mortgage loans is not deductible on your tax returns until the mortgage loan is paid off entirely.

How safe is a reverse mortgage loan?

Reverse mortgage loans are sponsored by the US Government through HUD (Housing and Urban Development). The fees and expenses that can be charged on a reverse mortgage loan are regulated by HUD in order to protect the senior citizens. Additionally, and as a further protection, the US Government requires the senior citizen borrower to attend a counseling session through an independent counseling agency, not affiliated to the mortgage company

How common is a reverse mortgage loan?

For the past several years, the volume of reverse mortgages has increased by about 68% per year. Recently, the volume increased nearly 112% in 2004 over 2003. The popularity of reverse mortgage loans only continues to grow as more and more senior citizens learn about this invaluable mortgage loan program.

Contact our Reverse Mortgage Loan Specialists today!!!

Click here to apply for our Reverse Mortgage Loan Application

* Consult a Tax Advisor or Accountant for more details on the tax advantages

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