Right Reverse Mortgage Information Saves Money

There is a lot of reverse mortgage information out there, yet there is still confusion.  A reverse mortgage is a lot like a regular mortgage.  You have to own a home, you have to have equity in the home, you are charged a mortgage interest rate.

And there are some differences, the main one being that with a reverse mortgage you don’t make monthly payments.  Instead, the amount that you’d have to pay accumulates, so each month that passes, you owe the bank a bit more.  For that reason, the ratio loan to home value is lower.

An example to make this reverse mortgage information easier to understand.  Let’s say your home is worth $200,000 and the bank gave you a mortgage of $100,000 and your monthly payments are $0. Yes, $0 (the beauty of reverse mortgage loans).  And the monthly interest in dollars is $580. Let’s also say that you took the $100,000 in one lump payment.  Yes, it’s one of the ways you can get your reverse mortgage loan, in a lump payment.

So, each month you owe the bank $580.  After one month, the bank adds $580 to the $100,000 that you borrowed.  So, one month after you got your mortgage, you owe the bank $100,580.  The second month, the bank ads another $580 to what you owe them.  If you move out, you owe the bank the $100,000 you borrowed and the interest that you did not pay.  The longer you have this reverse mortgage, the more you owe.

Reverse Mortgage Information – Why Banks Give Reverse Mortgages

First, they do reverse mortgages because reverse mortgages are insured by FHA.  Then they do them because they make money.  Or, at least, they hope they will.

Let’s go with the above example, where the house is worth $200,000 and you get a reverse mortgage of $100,000.   With each reverse mortgage loan it makes, the bank is making a somewhat morbid bet.  Specifically, it bets that the value of your home by the time you move out or die will be higher than the amount you owe them.  Or, put another way, that you move out or die before the amount you owe them gets to be higher than the value of your home.

It’s morbid because you dying early enough is one of the components.  It’s a bet because you could live many, many years after there’s any equity left in the house.  It was $100,000 when you took out your reverse mortgage because the value of your home was $200,000 and you borrowed $100,000.  Only 3 things could have happened to the value of your home:

1.  It could go up (if it goes up only a bit, the bank can still lose if you live long),
2.  It could stay the same (the bank makes money if you die before the $100,000 equity is used up, loses otherwise)
3.  It could go down (if it goes down only a bit and you don’t end up living long, the bank can still make money).

To minimize the chances of loss, banks only give reverse mortgages to people where either the wife or the husband is 62 years old. Given the life expectancy of people in this country, giving a reverse mortgage to someone younger is way too risky.

Back To Reverse Mortgage Information And You

Here is what you need to know about reverse mortgages:

1.   You get reverse mortgages without income, assets or credit (except for current bankruptcy) qualification.  So you don’t have to do the bad credit mortgage dance.
2.   When you take out a reverse mortgage, you remain the owner of your home, the bank does not own it (the bank owns a lien against your home).
3.   Since you remain the owner, the title stays in your name.
4.   You (or your spouse) must be 62 years old to qualify.
5.   The home must be your primary residence (can’t take a reverse mortgage on an investment property or a summer home).
6.   If there’s no equity in the home when you die, your surviving family is not responsible for the part of the reverse mortgage loan the bank cannot    recover from the sale of the home.
7.   There is no penalty for paying off the mortgage loan early.
8.   A reverse mortgage, being a loan, is not taxable, so you won’t have to pay taxes on it.
9.   You can get your reverse mortgage loan either as a one lump payment, fixed monthly payments, a line of credit, or a combination of these three options.
10.  You can use reverse mortgage loans just as you would any other loan (for anything you want that is legal).
11.  Reverse mortgages become due when the borrowers no longer use the home as their principal residence (the borrowers sold the home, moved out permanently or died).
12.  You must have a Credit Counseling session with an FHA-approved counselor as part of your application for a reverse mortgage.  The consultation is free to you, can be done over the phone or in person and results in you getting a Counseling Certificate which you have to provide the bank before they’ll give you a reverse mortgage loan.
13.  If you have money in your reverse mortgage line of credit, you do not run into problems with Medicaid (has no effect on your Medicaid eligibility since this is a loan not income).
14.  Any interest you choose to pay during you have a reverse mortgage is deductible at tax time.  Of course, you don’t have to pay any of it

Reverse Mortgage Information – How Much Can You Borrow?

Since not all the people who are looking to get a reverse mortgage have the same circumstances and needs, the answer is: it depends.  Here is what it depends on:

1.   How old you are when you take out your reverse mortgage loan
2.   What kind of reverse mortgage payment you choose
3.   The value of your home (the more expensive the house the bigger your reverse mortgage loan can be) the day you take out your reverse mortgage loan
4.   The mortgage interest rate at the time your take out your reverse mortgage (easy to check, just Google current mortgage rates.
5.   Where you live might also be a factor, depending on which reverse mortgage product you choose.
6.   Generally speaking, the more equity you have, the more you can borrow; the older you are, the more you can borrow.

Reverse Mortgage Information – Costs

Reverse mortgages have costs similar to those of conventional loans (appraisal fee, title policy fee, mortgage insurance, and other normal closing fees).  Costs can be rolled into the reverse mortgage loan.

Reverse Mortgage Information – Conclusion

By way of conclusion, I’d like to summarize the main points:

1.    No income, assets or credit qualifying (except for current bankruptcy)
2.    Only for people who are at least 62 years old
3.    Home must be the borrower(s) primary residence
4.    The money is not taxable and it has no bearing on Social Security or Medicare benefits eligibility
5.    Reverse mortgage  money can be used for anything the homeowners want to use it
6.    Reverse mortgage money can be taken out in one lump sum, a line of credit, monthly payments, or a combination of these three methods
7.    You don’t have to make any monthly payments to the bank
8.    No prepayment penalties
9.    Borrowers remain owners, remain on title
10   The lender decides how much you can borrow.

I hope you found my reverse mortgage information useful and that you enter the world of reverse mortgages better prepared because of it.